NEW ISSUES - BOOK-ENTRY ONLY Fitch: "AAA" Moody's: "Aa2" (See "MISCELLANEOUS - Ratings.") In the opinion of Orrick, Herrington & Sutcliffe UP, Bond Counsel to the District, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy ofcertain representations and compliance with certain covenants, interest on the Tax-Exempt Bonds is excluded from gross income for federal income ta:r purposes under Section 103 of the Internal Revenue Code of 1986 (the "Code']. In the further opinion of Bond Counsel, interest on the Tax-Exempt Bonds is not a specific preference item for purposes of the federal alternative minimum tax. Bond Counsel is also of the opinion that interest on the Bonds is exempt from State of California personal income taxes. Bond Counsel observes that interest on the Taxable Bonds is not excluded from gross income for federal income tax purposes under Section 103 of the Code. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition oJ; or the amount, accrual or receipt of interest on, the Bonds. See "TAX MATTERS." GROSSMONT UNION HIGH SCHOOL DISTRICT (San Diego County, California) $4,510,000 $38,490,000 2018 General Obligation Bonds 2018 General Obligation Bonds (Election of 2016, Series B-1) (Election of 2016, Series B-2) (Federally Taxable)

Dated: Date of Delivery Due: As shown on the inside cover This cover page contains certain information for reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Grossmont Union High School District 2018 General Obligation Bonds (Election of 2016, Series B-1) (Federally Taxable) (the "Series B-1 Bonds" or the "Taxable Bonds") and the Grossmont Union High School District 2018 General Obligation Bonds (Election of 2016, Series B-2) (the "Series B-2 Bonds" or the "Tax-Exempt Bonds" and, together with the Series B-1 Bonds, the "Bonds") were authorized by the registered voters of the Grossmont Union High School District (the "District") at an election held on November 8, 2016, at which the requisite 55% or more of the persons voting on the bond measure ("Measure BB") voted to authorize the issuance and sale of $128 million principal amount of general obligation bonds of the District (the "2016 Election"). The Bonds are being issued by the District, located in the County of San Diego, California (the "County'') for the purpose of providing funds (i) to finance construction, improvement and modernization projects approved by the voters, (ii) to pay debt service of the Series B-1 Bonds at maturity and a portion of the interest due on the Bonds and (iii) to pay costs of issuance of the Bonds. The Board of Supervisors of the County is empowered and is obligated to levy ad valorem taxes upon all property subject to taxation by the District, without limitation as to rate or amount ( except as to certain personal property which is taxable at limited rates), for the payment of principal of and interest on the Bonds, all as more fully described herein. See "SECURITY AND SOURCES OF PAYMENT FOR TIIE BONDS."" The Bonds are general obligation bonds of the District, secured and payable from ad valorem property taxes assessed on taxable properties within the District, without limitation as to rate or amount ( except as to certain personal property which is taxable at limited rates). The Bonds are not obligations of the County or of the general fund of the District. See "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS." The Bonds will be issued as current interest bonds. The Bonds will be dated the date of their delivery, will mature in the principal amounts and will bear interest payable commencing on February 1, 2019, and thereafter on each February I and August 1 to maturity or upon earlier redemption, at the rates set forth on the inside cover page hereof. See "1HE BONDS - Payment of Principal and Interest." Payments of principal of the Bonds will be made bythe Paying Agent (initially, the Treasurer-Tax Collector of the County of San Diego) to The Depository Trust Company, New York, New York ("DTC"), for subsequent disbursement to DTC Participants, who will remit such payments to the Beneficial Owners (as defined in APPENDIX F) of the Bonds. The Bonds will be issued in book-entry form only, and will be initially issued and registered in the name of a nominee of DTC. Purchasers will not receive physical certificates representing their interests in the Bonds. See "THE BONDS - Payment of Principal and Interest" and APPENDIX F- "BOOK-ENTRY ONLY SYSTEM.""

The Bonds are subject to redemption prior to maturity. See "THE BONDS - Redemption." The Bonds will be offered when, as, and if issued by the District and received by the Underwriters, subject to the approval of validity by Orrick, Herrington & Sutcliffe LLP, Bond Counsel. Certain legal matters will be passed upon for the District by Orrick, Herrington & Sutcliffe Up, as Disclosure Counsel, and for the Underwriters by Stradling Yocca Carlson & Rauth, a Professional Corporation. It is anticipated that the Bonds, in definitive form, will be available for delivery through the facilities of DTC on or about October 24, 2018. STIFEL CITIGROUP The date of this Official Statement is October 10, 2018. MATURITY SCHEDULES

$4,510,000 GROSSMONT UNION HIGH SCHOOL DISTRICT (San Diego County, California) 2018 General Obligation Bonds (Election of 2016, Series B-1) (Federally Taxable)

Maturity Principal Interest CUSIPt Number (August 1) Amount Rate Yield* (399262)

2019 $4,510,000 2.620% 2.620% QS6

$38,490,000 GROSSMONT UNION HIGH SCHOOL DISTRICT (San Diego County, California) 2018 General Obligation Bonds (Election of 2016, Series B-2)

Maturity Principal Interest CUSIPt Number (August 1) Amount Rate Yield* (399262)

2023 $ 100,000 5.000% 2.080% QW7 2024 190,000 5.000 2.170 QX5 2025 280,000 3.000 2.260 QY3 2026 380,000 5.000 2.440 QZO 2027 490,000 5.000 2.590 RA4 2028 605,000 5.000 2.720 RB2 2029 735,000 5.000 2.820c RCO 2030 880,000 5.000 2.940c RDS 2031 1,030,000 4.000 3.180c RE6 2032 1,185,000 4.000 3.280c RF3 2033 1,350,000 5.000 3.180c RGl 2034 1,545,000 5.000 3.230c RH9 2035 1,750,000 5.000 3.280c RJ5 2036 1,970,000 5.000 3.330c RK2 2037 2,205,000 5.000 3.370c RLO 2038 2,465,000 5.000 3.410c RMS 2039 2,740,000 5.000 3.440c QT4 2040 3,035,000 5.000 3.470c QUl 2041 3,355,000 5.000 3.480c QV9

$12,200,000 4.000% Term Bonds due August 1, 2043 - Yield' 4.000%c - CUSIP' Number 399262 RN6

* Yields certified by the Underwriters. The District takes no responsibility for the accuracy thereof. t CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright© 2018 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP® numbers are provided for convenience of reference only. None of the District, the Underwriters or their agents or counsel assumes responsibility for the accuracy of such numbers. c Yield to the par call date of August 1, 2028. GROSSMONT UNION HIGH SCHOOL DISTRICT

District Governing Board

Robert Shield President Area 4 Chris Fite Elva Salinas Vice President Clerk Area I Area2

Jim Kelly Dr Gary Woods Member Member Area5 Area 3

District Administration

Dr Tim Glover Superintendent

Scott H. Patterson Deputy Superintendent, Business Services

Ken Leighton Executive Director, Fiscal Services

Katy Wright Executive Director, Facilities Management

Bond Counsel and Disclosure Counsel

Orrick, Herrington & Sutcliffe LLP San Francisco, California

Municipal Advisor

KNN Public Finance, LLC Los Angeles, California

Paying Agent

Treasurer-Tax Collector of the County of San Diego, California San Diego, California This Official Statement does not constitute an offering of any security other than the original offering of the Bonds by the District. No dealer, broker, salesperson or other person has been authorized by the District to give any information or to make any representations other than as contained in this Official Statement, and if given or made, such other information or representation not so authorized should not be relied upon as having been given or authorized by the District.

The Bonds are exempted from registration under the Securities Act of 1933, as amended, pursuant to Section 3(a)(2) thereof This Official Statement does not constitute an offer to sell or a solicitation of an offer to buy Bonds in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation.

The information set forth herein other than that furnished by the District, although obtained from sources which are believed to be reliable, is not guaranteed as to accuracy or completeness. The information and expressions of opinion herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District since the date hereof This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose.

The Underwriters listed on the cover page hereof (collectively, the "Underwriters") have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their respective responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information.

Certain statements contained in this Official Statement reflect not historical facts but forecasts and "forward-looking statements." In this respect, the words "estimate," "project," "anticipate," "expect," "intend," "believe," and similar expressions are intended to identify forward-looking statements. The achievement of certain results or other expectations contained in such forward-looking statements involves known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. All projections, forecasts, assumptions, expressions of opinions, estimates, and other forward-looking statements are expressly qualified in their entirety by the foregoing and the other cautionary statements set forth in this Official Statement.

The District maintains a website. However, the information presented on that website is not part of this Official Statement and should not be relied upon in making investment decisions with respect to the Bonds.

In connection with this offering, the Underwriters may overallot or effect transactions which stabilize or maintain the market prices of the Bonds at levels above those that might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriters may offer and sell the Bonds to certain securities dealers and dealer banks and banks acting as agent at prices lower than the public offering prices stated on the cover page hereof and said public offering prices may be changed from time to time by the Underwriters. TABLE OF CONTENTS

Page

INTRODUCTION ...... I The District ...... I THE BONDS ...... 2 Authority for Issuance; Purpose ...... 2 Form and Registration ...... 2 Payment of Principal and Interest ...... 3 Redemption ...... 3 Defeasance of Bonds ...... 4 Unclaimed Moneys ...... 5 Application and Investment of Bond Proceeds ...... 5 ESTIMATED SOURCES AND USES OF FUNDS ...... 7 DEBT SERVICE ...... 8 Aggregate Annual Debt Service ...... 8 Outstanding General Obligation Bonds ...... 9 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS ...... 10 General ...... 10 Pledge ofTaxRevenues ...... 10 Statutory Lien - SB 222 ...... IO Property Taxation System ...... 10 Assessed Valuation of Property Within the District ...... 11 Tax Rates ...... 17 Tax Collections and Delinquencies ...... 18 TAX MATTERS ...... 22 Tax-Exempt Bonds ...... 22 Taxable Bonds ...... 23 OTHER LEGAL MATTERS ...... 26 Possible Limitations on Remedies; Bankruptcy ...... 26 Amounts Held in County Treasury Pool ...... 28 Legal Opinion ...... 28 Legality for Investment in California ...... 28 Continuing Disclosure ...... 28 Alpine Unification Petition and Termination of Related Litigation ...... 29 Litigation ...... 29 MISCELLANEOUS ...... 30 Ratings ...... 30 Professionals Involved in the Offering ...... 30 Underwriting ...... 30 Additional Information ...... 31 APPENDIX A INFORMATION RELATING TO THE DISTRICT ...... A-1 APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED TIJNE 30, 2017 ...... B-1 APPENDIX C PROPOSED FORM OF OPINION OF BOND COUNSEL ...... C-1 APPENDIX D PROPOSED FORM OF CONTINUING DISCLOSURE CERTIFICATE ...... D-1 APPENDIX E SAN DIEGO COUNTY INVESTMENT POOL ...... E-1 APPENDIX F BOOK-ENTRY ONLY SYSTEM ...... F-1

-1- (THIS PAGE INTENTIONALLY LEFT BLANK) GROSSMONT UNION HIGH SCHOOL DISTRICT (San Diego County, California)

$4,510,000 $38,490,000 2018 General Obligation Bonds 2018 General Obligation Bonds (Election of 2016, Series B-1) (Election of 2016, Series B-2) (Federally Taxable)

INTRODUCTION

This Official Statement, which includes the cover page and appendices hereto, is provided to furnish information in connection with the sale of the Grossman! Union High School District 2018 General Obligation Bonds (Election of 2016, Series B-1) (Federally Taxable) (the "Series B-1 Bonds" or the "Taxable Bonds"), and the Grossman! Union High School District 2018 General Obligation Bonds (Election of 2016, Series B-2) (the "Series B-2 Bonds" or the "Tax-Exempt Bonds" and, together with the Series B-1 Bonds, the "Bonds").

This Official Statement speaks only as of its date, and the information contained herein is subject to change. Except as set forth in the Continuing Disclosure Certificate to be executed by the Grossman! Union High School District (the "District"), the District has no obligation to update the information in this Official Statement. See "OTHER LEGAL MATTERS - Continuing Disclosure."

The Bonds are being issued pursuant to a resolution of the District on adopted on September 13, 2018 (the "District Resolution"), a resolution of the County of San Diego (the "County") expected to be adopted on October 9, 2018, and a paying agent agreement (the "Paying Agent Agreement"), dated as of October 1, 2018, by and between the District and the County through the Office of the Treasurer-Tax Collector of the County (the "County Treasurer"), as paying agent (the "Paying Agent").

The purpose of this Official Statement is to supply information to prospective buyers of the Bonds. Quotations from and summaries and explanations of the Bonds, the District Resolution and the Paying Agent Agreement providing for the issuance of the Bonds, and the constitutional provisions, statutes and other documents described herein, do not purport to be complete, and reference is hereby made to said documents, constitutional provisions and statutes for the complete provisions thereof. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the District and the purchasers or owners of any of the Bonds.

Copies of documents referred to herein and information concerning the Bonds are available from the District upon request to the Superintendent, Grossman! Union High School District, 1100 Murray Drive, El Cajon, CA 92020-5664. The District may impose a charge for copying, handling and mailing such requested documents.

The District

The District, located in eastern San Diego County, was established in 1920 and encompasses an area of approximately 465 square miles, including all of the cities of El Cajon, Santee and Lemon Grove, most of the City of La Mesa, a small portion of the City of San Diego and the unincorporated communities of Alpine, Dulzura, Jamul, Lakeside, and Spring Valley. The District's projected annual average daily attendance for fiscal year 2018- 19 is 15,682, and the District's 2018-19 budgeted general fund expenditures are approximately $222.5 million. The District is the eighth-largest high school district in California as measured by emollment.

The District is a high school district, providing education to students in grades 9-12 from eight feeder elementary school districts. The District currently operates nine comprehensive high schools, two charter high schools, one continuation high school, two alternative education sites, three special education facilities, a middle college high school program, a Career Technical Education Program ("CTE"), an adult education program and a day care facility. Taxable property in the District has a fiscal year 2018-19 assessed value of approximately $49.6 billion. For fiscal year 2018-19, the District has projected the employment of 859. 7 full-time equivalent ("FIE") certificated employees (teaching staff), 663.4 FIE classified employees and 107.8 FIE management, supervisory and confidential personnel. The District operates under the jurisdiction of the San Diego County Superintendent of Schools.

As of September 1, 2018 the District has $534,331,376.55 principal amount of general obligation bonds outstanding and $184,943,321.80 remaining voter-approved authorization for future issuances prior to the sale of the Bonds. See APPENDIX A - "INFORMATION RELATING TO THE DISTRICT - FINANCIAL AND OPERATING INFORMATION - District Debt Structure and Long Tenn Obligations."

The District is governed by a governing board consisting of five members (the "Board"). The members are elected to four-year terms in staggered years. Elections for positions to the Board are held every two years, alternating between two and three available positions. Beginning November 2016, the Board changed the District's method of election of the Board from "at-large" voting to "by-trustee-area" voting, by which method members of the Board are elected by the voters of the trustee area in which they reside. The day-to-day operations are managed by a board-appointed Superintendent. For additional information about the District, see APPENDIX A - "INFORMATION RELATING TO THE DISTRICT -FINANCIAL AND OPERATING INFORMATION"

THE BONDS

Authority for Issuance; Purpose

The Bonds described herein are authorized to be issued pursuant to the Constitution and laws of the State of California (the "State"), including the provisions of Article 4.5 of Chapter 3 of Part 1 of Division 2 of Title 5 of the Government Code, and other applicable provisions of law, including applicable provisions of the Education Code, District Resolution adopted by the Governing Board of the District on September 13, 2018 and the Paying Agent Agreement. The County approved the financings on October 9, 2018.

The Bonds were authorized to be issued at an election held on November 8, 2016, by 55% or more of the votes cast by eligible voters within the District. The measure authorized the District to issue bonds in an aggregate principal amount not to exceed $128,000,000 ("Measure BB") to upgrade East County high school classrooms, labs and facilities, repair aging roofs, plumbing and electrical systems, modernize technology infrastructure, improve student safety and security, replace deteriorated portables, construct new school facilities to accommodate growth, and renovate career-training facilities for instruction in science, technology, engineering, math and skilled trades. The full ballot measure contains numerous projects which the Board will fund based on its determined priorities. Not all projects listed in the measure may be funded. The Bonds are the second series of bonds issued under Measure BB, after which $42,000,000 of the Measure BB bonding authority will remain.

Proceeds of the Bonds will be applied (i) to finance construction, improvement and modernization projects approved by the November 8, 2016 election, (ii) to pay debt service of the Series B-1 Bonds at maturity and a portion of the interest due on the Bonds and (iii) to pay costs of issuance of the Bonds. See "- Application and Investment of Bond Proceeds" below and "OTHER LEGAL MATTERS -Litigation."

Form and Registration

The Bonds will be issued in fully registered book-entry form only, in denominations of $5,000 or any integral multiple thereof The Bonds will initially be registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DIC"), New Yark, New Yark DIC will act as securities depository for the Bonds. Purchases of Bonds under the DIC system must be made by or through a DIC participant, and ownership interests in Bonds or any transfer thereof will be recorded as entries on the books of said participants. Except in the event that use of this book-entry system is discontinued for the Bonds, beneficial owners will not receive physical certificates representing their ownership interests. See APPENDIX F - "BOOK-ENTRY ONLY SYSTEM"

2 Payment of Principal and Interest

The Bonds will be issued as current interest bonds, and shall mature in the amounts and on August I 111 each of the years as set forth on the inside front cover page hereof The Bonds will be dated as of their date of delivery, and bear interest at the rates set forth on the inside front cover page of this Official Statement, payable commencing on February I, 2019, and on February I and August I of each year thereafter (each, an "Interest Payment Date"), computed on the basis of a 360-day year consisting of twelve 30-day months. Each of the Bonds shall bear interest (payable to the owner thereof) from the Interest Payment Date next preceding the date of authentication thereof, unless it is authenticated after the close of business on the 15th day of the calendar month immediately preceding an Interest Payment Date (the "Record Date") and on or prior to the succeeding Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or unless it is authenticated on or before the Record Date preceding the first Interest Payment Date, in which event it shall bear interest from its dated date; provided, however, that if, at the time of authentication of any of the Bonds, interest is in default on any outstanding Bonds, such Bonds shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment on the outstanding Bonds.

Redemption

Optional Redemption. The Bonds maturing on or before August I, 2028, are not subject to redemption prior to their respective stated maturity dates. The Bonds maturing on and after August I, 2029, shall be subject to redemption prior to their respective stated maturity dates, at the option of the District, from any source of available funds, as a whole or in part on any date on or after August I, 2028, at a redemption price equal to I 00% of the principal amount thereof, together with interest accrued thereon to the date of redemption, without premium.

Mandatory Sinking Fund Redemption. The Term Bonds maturing on August I, 2043, are also subject to mandatory sinking fund redemption on each mandatory sinking fund redemption date and in the respective principal amounts set forth in the following schedule, at a redemption price equal to 100% of the principal amount thereof to be redeemed (without premium), together with interest accrued thereon to the date fixed for redemption:

Mandatory Sinking Fund Redemption Date Principal Amount to be (August I) Redeemed

2042 $3,690,000 2043' 8,510,000

Maturity.

The principal amount of any maturity to be redeemed in each year shown in the table above will be reduced as directed by the District, or in the absence of such direction, will be reduced proportionately by the amount of any Term Bonds of that maturity optionally redeemed prior to the mandatory sinking fund redemption date. Selection of Bonds for Redemption. If less than all of the Bonds are subject to such redemption and are called for redemption, such Bonds shall be redeemed in inverse order of maturities or as otherwise directed by the District ( or as otherwise set forth in the bond purchase contract between the District and the Underwriters ( defined herein)), and if less than all of the Bonds of any given maturity are called for redemption, the portions of such Bonds of a given maturity to be redeemed shall be determined by lot (or as otherwise set forth in the bond purchase contract between the District and the Underwriters or by DIC procedures).

Notice of Redemption. Notice of any redemption of the Bonds shall be mailed by the Paying Agent or an escrow agent, not less than 20 nor more than 60 days prior to the redemption date (i) by first class mail to the respective Owners thereof at the addresses appearing on the bond registration books, and (ii) as may be further required in accordance with the Continuing Disclosure Certificate. See APPENDIX D - "PROPOSED FORM OF CONTINUING DISCLOSURE CERTIFICATE."

3 Each notice of redemption shall state (i) the date of such notice; (ii) the name of the Bonds and the date of issue of the Bonds; (iii) the redemption date; (iv) the redemption price; (v) the series of Bonds and the dates of maturity or maturities of the Bonds to be redeemed; (vi) if less than all of the Bonds of a series of any maturity are to be redeemed, the distinctive numbers of the Bonds of each maturity of such series to be redeemed; (vii) in the case of Bonds of a series to be redeemed in part only, the respective portions of the principal amount of the Bonds of each maturity of such series to be redeemed; (viii) the CUSIP number, if any, of each maturity of Bonds of a series to be redeemed; (ix) a statement that such Bonds must be surrendered by the Owners at the principal corporate trust office of the Paying Agent, or at such other place designated by the Paying Agent; (x) notice that further interest on such Bonds will not accrue after the designated redemption date; and (xi) in the case of a conditional notice, that such notice is conditioned upon certain circumstances and the manner of rescinding such conditional notice. Neither the failure to receive any notice so mailed, nor any defect in such notice, shall affect the sufficiency of the proceedings for the redemption of the Bonds or the cessation of interest on the date fixed for redemption.

Effect of Notice of Redemption When notice of redemption has been given substantially as provided for in the District Resolution, and when the redemption price of the Bonds called for redemption has been set aside for such purpose, the Bonds designated for redemption shall become due and payable on the specified redemption date and interest shall cease to accrue thereon as of the redemption date, and upon presentation and surrender of such Bonds at the place specified in the notice of redemption, such Bonds shall be redeemed and paid at the redemption price thereof out of the money provided therefor. The Owners of such Bonds so called for redemption after such redemption date shall be entitled to payment thereof only from the interest and sinking fund of the District (the "Interest and Sinking Fund") or the escrow fund established for such purpose. All Bonds redeemed shall be cancelled forthwith by the Paying Agent and shall not be reissued.

Partial Redemption of Bonds In the case of partial redemption of the Bonds evidencing all or a portion of the principal amount then outstanding, DIC shall make an appropriate notation on the Bonds indicating the date and amounts of such reduction in principal.

Conditional Notice Any notice of optional redemption delivered hereunder may be conditioned on any fact or circumstance stated therein, and if such condition shall not have been satisfied on or prior to the redemption date stated in such notice, said notice shall be of no force and effect on and as of the stated redemption date, the redemption shall be cancelled, and the District shall not be required to redeem the Bonds that were the subject of the notice. The Paying Agent shall give notice of such cancellation and the reason therefor in the same manner in which notice of redemption was originally given. The actual receipt by the owner of any Bond of notice of such cancellation shall not be a condition precedent to cancellation, and failure to receive such notice or any defect in such notice shall not affect the validity of the cancellation.

Rescission of Notice of Redemption. The District may rescind any optional redemption and notice thereof for any reason on any date prior to the date fixed for redemption. Any optional redemption and notice thereof shall be rescinded if for any reason on the date fixed for redemption moneys are not available in the Interest and Sinking Fund or otherwise held in trust for such purpose in an amount sufficient to pay in full on said date the principal of, interest, and any premium due on the Bonds called for redemption. Notice of rescission of redemption shall be given in the same manner in which notice of redemption was originally given. The actual receipt by the owner of any Bond of notice of such rescission shall not be a condition precedent to rescission, and failure to receive such notice or any defect in such notice shall not affect the validity of the rescission.

Defeasance of Bonds

The District may pay and discharge any or all of the Bonds by depositing in trust with the Paying Agent or an escrow agent at or before maturity, money or Defeasance Securities ( defined below) in an amount which will, together with the interest to accrue thereon and available moneys then on deposit in the Interest and Sinking Fund, be fully sufficient to pay and discharge the indebtedness on such Bonds (including all principal, interest and redemption premiums) at or before their respective maturity dates.

Any Outstanding Bond shall, prior to the maturity date or redemption date thereof, be deemed to have been paid within the meaning of and with the effect expressed in the District Resolution, provided that (i) the District shall have given to the Paying Agent or an escrow agent in form satisfactory to it irrevocable instructions to mail

4 notice of redemption of such Bond on said redemption date, said notice to be given in accordance with the required notice provisions in the District Resolution, (ii) there shall have been deposited with the Paying Agent or an escrow agent either (A) money in an amount which shall be sufficient, or (B) Defeasance Securities, the principal of and the interest on which when due, and without any reinvestment thereof, will provide moneys which shall be sufficient to pay when due the principal of, premium, if any, and interest on such Bond, and (iii) in the event such Bond is not by its terms subject to redemption within the next succeeding 60 days, the District shall have given the Paying Agent or an escrow agent in form satisfactory to it irrevocable instructions to mail as soon as practicable, a notice to the Owners of such Bond that the deposit required by clause (ii) above has been made with the Paying Agent or an escrow agent and that such Bond is deemed to have been paid in accordance with the District Resolution and stating the maturity date or redemption date upon which money is to be available for the payment of the principal of, premium, if any, and interest on such Bond.

No Bond shall be deemed to have been paid pursuant to clause (ii)(B) above unless the District shall have caused to be delivered (i) an executed copy of a verification report with respect to such deemed payment, addressed to the District and the Paying Agent or escrow agent, in form and in substance acceptable to the District and the Paying Agent or escrow agent, and (ii) a copy of the escrow agreement entered into in connection with the deposit pursuant to clause (ii)(B) above resulting in such deemed payment, which escrow agreement shall provide that no substitution of Defeasance Securities shall be permitted except with other Defeasance Securities and upon delivery of a new verification report, and no reinvestment ofDefeasance Securities shall be permitted except as contemplated by the original verification report or upon delivery of a new verification report.

As defined in the District Resolution, "Defeasance Securities" means:

(i) direct, non-callable obligations of the United States Treasury; (ii) direct non-callable and non­ prepayable obligations which are unconditionally guaranteed by the United States of America as to full and timely payment of principal and interest; (iii) non-callable, non-prepayable coupons from the above securities which are stripped pursuant to United States Treasury programs; (iv) non-callable and non-prepayable (or irrevocably called to a specified redemption date) refunded municipal bonds that are backed by an escrow funded with obligations of or guaranteed by the United States of America; (v) Resolution Funding Corporation (REFCORP) securities consisting of interest components stripped by the Federal Reserve Bank of New York; (vi) non-callable, and non-prepayable fixed rate Israel Notes guaranteed as to principal and interest by the United States of America through the United Agency for International Development (provided that, such notes maintain a rating at the same level as obligations of the United States Treasury and mature at least four business days before funds are needed for refunded bond debt service payments); (vii) United States State and Local Government Securities (SLGS); and (viii) the following non­ callable, non-prepayable obligations of federal government-sponsored agencies that are not backed by the full faith and credit of the US. Government: Federal Home Loan Bank, Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Tennessee Valley Authority, Fann Credit System, Washington Metropolitan Area Transit Authority, United States Import-Export Bank, United States Department of Housing and Urban Development, Farmers Home Administration, General Services Administration and United States J\Aaritime Administration (provided such entities maintain a rating at the same level as obligations of the United States Treasury).

Unclaimed Moneys

Any moneys held by the Paying Agent in trust for the payment of the principal of, redemption premium, if any, or interest on any Bonds remaining unclaimed for one year after the principal of all of the Bonds has become due and payable (whether by maturity or upon prior redemption), shall be transferred to the Interest and Sinking Fund for payment of any outstanding bonds of the District payable from the fund, or, if no such bonds of the District are at such time outstanding, the moneys shall be transferred to the general fund of the District as provided and permitted by law, and the Paying Agent shall thereupon be released and discharged with respect thereto and the Owners of such Bonds shall look only to the District for the payment of such principal and interest.

Application and Investment of Bond Proceeds

The proceeds from the sale of the Bonds will be deposited in the County Treasury to the credit of the Building Fund of the District. Any premium received by the District will be deposited in the Interest and Sinking

5 Fund. Earnings on the investment of moneys in either fund will be retained in that fund and used only for the purposes to which that fund may lawfully be applied. Moneys in the Building Fund may only be applied for the purposes for which the Bonds were approved. Moneys in the Interest and Sinking Fund may only be applied to make payments of interest, principal, and premium, if any, on bonds of the District.

Amounts deposited into the Interest and Sinking Fund, as well as proceeds of taxes held therein for payment of the Bonds, will be invested at the sole discretion of the County Treasurer pursuant to law and the investment policy of the County. See APPENDIX E - "SAN DIEGO COUNTY INVESTMENT POOL."

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6 ESTIMATED SOURCES AND USES OF FUNDS

The proceeds of the Bonds are expected to be applied as follows:

Sources of Funds: Principal Amount of Bonds $43,000,000.00 Original Issue Premium 3,490,788.00 Total Sources $46,490,788.00

Uses of Funds: Deposit to Building Fund $43,000,000.00 Deposit to Interest and Sinking Fund 3,024,308.00 Underwriters' Discount 177,590.00 Costs oflssuance(I) 288,890.00 Total Uses $46,490,788.00

Cl) Includes fees of the municipal advisor, Bond Collllsel, Disclosure Collllsel, rating agencies, Paying Agent, fiscal agent, printing, and other miscellaneous expenses.

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7 DEBT SERVICE

Aggregate Annual Debt Service

The following table summarizes the annual aggregate debt service requirements of all outstanding general obligation bonds of the District, including the Bonds, assuming no early redemptions.

Combined Annual Debt Other Service of All Outstanding Outstanding Year Total Debt General General ending Principal on Interest on Service on Obligation Obligation (August 1) Bonds Bonds Bonds(!) BondsC2J(3) Bonds(') 2019 $4,510,000 $1,456,490.62 $2,942,182.62 $32,869,958.98 $35,812,141.60 2020 1,774,750.00 1,774,750.00 33,486,642.68 35,261,392.68 2021 1,774,750.00 1,774,750.00 35,423,332.68 37,198,082.68 2022 1,774,750.00 1,774,750.00 37,181,932.68 38,956,682.68 2023 100,000 1,774,750.00 1,874,750.00 39,028,432.68 40,903,182.68 2024 190,000 1,769,750.00 1,959,750.00 41,422,182.68 43,381,932.68 2025 280,000 1,760,250.00 2,040,250.00 43,458,682.68 45,498,932.68 2026 380,000 1,751,850.00 2,131,850.00 45,576,262.17 47,708,112.17 2027 490,000 1,732,850.00 2,222,850.00 47,796,543.76 50,019,393.76 2028 605,000 1,708,350.00 2,313,350.00 50,143,543.76 52,456,893. 76 2029 735,000 1,678,100.00 2,413,100.00 52,611,193.76 55,024,293. 76 2030 880,000 1,641,350.00 2,521,350.00 55,183,243.76 57,704,593.76 2031 1,030,000 1,597,350.00 2,627,350.00 57,897,043.76 60,524,393.76 2032 1,185,000 1,556,150.00 2,741,150.00 60,732,768.76 63,473,918.76 2033 1,350,000 1,508,750.00 2,858,750.00 63,717,537.50 66,576,287.50 2034 1,545,000 1,441,250.00 2,986,250.00 27,840,937.50 30,827,187.50 2035 1,750,000 1,364,000.00 3,114,000.00 29,045,837.50 32,159,837.50 2036 1,970,000 1,276,500.00 3,246,500.00 30,299,437.50 33,545,937.50 2037 2,205,000 1,178,000.00 3,383,000.00 31,657,137.50 35,040,137.50 2038 2,465,000 1,067,750.00 3,532,750.00 33,015,487.50 36,548,237.50 2039 2,740,000 944,500.00 3,684,500.00 34,438,356.26 38,122,856.26 2040 3,035,000 807,500.00 3,842,500.00 35,906,950.00 39,749,450.00 2041 3,355,000 655,750.00 4,010,750.00 16,526,800.00 20,537,550.00 2042 3,690,000 488,000.00 4,178,000.00 35,190,400.00 39,368,400.00 2043 8,510,000 340,400.00 8,850,400.00 32,827,850.00 41,678,250.00 2044 12,144,300.00 12,144,300.00 2045 12,751,400.00 12,751,400.00 TOTAL $43,000,000 $34,823,890.62 $7 4, 799,582.62 $1,028,17 4, 196.05 $1,102,973, 778.67

Cll Excludes amounts to be paid from funds deposited to the Interest and Sinking Fund of the District from Bond proceeds. c2i Includes net of expected Qualified School Construction Bonds ("QSCB") subsidy payments. The Election of 2008, Series D Bonds are designated as QSCB bonds under Section 54F of the Code, entitling the District to receive subsidies for the interest cost of such bonds. The federal Balanced Budget and Emergency Deficit Control Act of 1985, as amended, included provisions known as sequestration that reduced the direct subsidy payments made pursuant to Section 6431 of the Code. The sequestration rate for the federal fiscal year ending September 30, 2019 is 6.2%, which is expected to reduce the subsidy payments to the District for fiscal year 2018-19 by approximately $80,448.00. The sequestration rate changes annually. The District cannot predict whether or how subsequent sequestration actions may affect subsidy payments currently scheduled for receipt in future federal fiscal years. Debt service reflects sinking fund deposits on the QSCBs; $24,990,000 in principal is due at maturity on August 1, 2025. $5,440,000 of QSCB sinking fund payments are already on deposit in the County treasury. C3l Includes a final debt service payment date of June 1, 2029 on the Election of 2004, Series 2004 Bonds, a final debt service payment date of June 1, 2031 for the Election of 2004, Series 2006 Bonds, and a February 1, 2025 maturity and final debt service payment date of June 1, 2040 for the Election of 2008, Series F Bonds. C4l For more information See APPENDIX B - "AUDilED FINANCIAL STATEMENTS OF lHE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2017," Note 10. Source: KNN Public Finance, LLC.

8 Outstanding General Obligation Bonds

The District has bonds outstanding under three voter authorizations. On March 2, 2004, the District voters approved a measure authorizing the District to issue up to $274 million in general obligation bonds ("Proposition H''). The District issued the full authorized amount of these bonds in three series in 2004, 2006 and 2008, representing the full amount of obligations authorized under Proposition H. On November 4, 2008, the District received authorization from the voters to issue $417 million in general obligation bonds ("Proposition U"). Pursuant to Proposition U, the District has issued ten series of bonds, of which six series are outstanding, and the District has $99,943,321.80 ofremaining authorization under Proposition U In addition, the District issued seven series and has outstanding six series of refunding bonds issued to pay prior outstanding bonds of Proposition H and Proposition U On November 8, 2016, the District's voters approved Measure BB, authorizing the District to issue up to $128 million in general obligation bonds. Under Measure BB, the District has issued two series of bonds, of which one is outstanding, and the District has $85,000,000 of remaining authorization under Proposition U See APPENDIX A­ "INFORMATION RELATING TO THE DISTRICT - FINANCIAL AND OPERATING INFORMATION - District Debt Structure and Long Term Obligations." A summary of the District's general obligation bonds issued prior to the issuance of the Bonds is presented below:

Original Principal Principal Amount Outstanding Series Issue Date Amount as of September I, 20]8(1) Proposition H (2004) Series 2004 06/17/2004 $ 60,841,197.25 $14,521,197.25 Series 2006 06/21/2006 124,999,224.95 41,454,224.95 Series 2008 08/05/2008 88,159,577.80 29,704,672.70

Proposition U (2008) Series A 04/15/2009 $60,000,000.00 $ 650,000.00 Series B 08/18/2010 80,000,000.00 Series C 05/25/2011 15,000,000.00 Series D 05/25/2011 25,000,000.00 24,990,000 00(2) Series E 11/13/2013 40,000,000.00 38,205,000.00 Series F 06/04/2015 68,746,678.20 67,601,281.65 Series G-1 03/01/2017 2,060,000.00 Series G-2 03/01/2017 16,250,000.00 15,760,000.00 Series H-1 09/26/2017 285,000.00 Series H-2 09/26/2017 9,715,000.00 9,715,000.00

Measure BB (2016) Series A-1 03/01/2017 $ 1,710,000.00 Series A-2 03/01/2017 41,290,000.00 $38,230,000.00

Refunding Bonds Series 2011A 11/22/2011 $10,260,000.00 $ 7, 185,000.00 Series 20 l lB 11/22/2011 10,660,000.00 Series 2012 05/17/2012 54,515,000.00 42,160,000.00 Series 2015 12/23/2015 50,770,000.00 49,420,000.00 Series 2016 04/13/2016 51,490,000.00 50,120,000.00 Series 2016B 10/19/2016 90,435,000.00 89,305,000.00 Series 2017 09/26/2017 15,450,000.00 15,310,000.00

Cl) Excludes accreted value on capital appreciation bonds. C2> $5,440,000 of sinking fund payments are already on deposit in the County treasury. Source: KNN Public Finance, LLC.

For the combined annual debt service for all outstanding bonds of the District (assuming no additional optional redemptions prior to maturity), see "-Aggregate Annual Debt Service" above.

9 SECURITYANDSOURCESOFPAYMENTFORTHEBONDS

General

In order to provide sufficient funds for payment of principal and interest on the Bonds when due, the Board of Supervisors of the County is empowered and obligated to levy ad valorem taxes upon all property subject to taxation by the District, without limitation as to rate or amount (except as to certain personal property which is taxable at limited rates). Such taxes are in addition to other taxes levied upon property within the District, including the countywide tax of 1% of assessed value. When collected, the tax revenues levied to pay the Bonds will be deposited by the County Treasurer in the Interest and Sinking Fund, which is required by law to be maintained by the County and to be used solely for the payment of bonds of the District. The District requested the County levy ad valorem taxes for payment of principal and interest on the Bonds beginning in fiscal year 2018-19 pursuant to a resolution adopted by the Governing Board of the District on June 12, 2018.

Pledge of Tax Revenues

Pursuant to the District Resolution, the District pledges all revenues from the property taxes collected from the levy by the County Board of Supervisors for the payment of the Bonds and amounts on deposit in the Interest and Sinking Fund to the payment of the principal or redemption price of and interest on the Bonds. This pledge is valid and binding from the date of adoption of the District Resolution for the benefit of the owners of the Bonds and successors thereto. The property taxes and amounts held in the Interest and Sinking Fund are immediately subject to this pledge, and the pledge constitutes a lien and security interest which immediately attaches to the property taxes and amounts held in the Interest and Sinking Fund to secure the payment of the Bonds and is effective, binding, and enforceable against the District, its successors, creditors and all others irrespective of whether those parties have notice of the pledge and without the need of any physical delivery, recordation, filing, or further act. "Bonds" for purpose of this pledge means all bonds of the District heretofore or hereafter issued pursuant to voter approved measures of the District, including refunding bonds of such bonds and the Bonds, as all such Bonds are required by State law to be paid from the Interest and Sinking Fund.

The pledge is an agreement between the District and the bondholders to provide security for the Bonds in addition to any statutory lien that may exist. The Bonds and each of the other bonds secured by the pledge are or were issued to finance or refinance one or more of the projects specified in the applicable voter-approved measure.

Statutory Lien - SB 222

California Senate Bill 222 (2015) ("SB 222"), effective January 1, 2016, provides that general obligation bonds are secured by a statutory lien on the ad valorem taxes levied and collected to pay principal and interest thereon. For more information, see "OTHER LEGAL MATTERS - Possible Limitations on Remedies; Bankruptcy - Statutory Lien."

Property Taxation System

Article XI I IA of the California Constitution. On June 6, 1978, California voters approved Proposition 13 ("Proposition 13"), which added Article XIIIA to the California Constitution ("Article XIIIA"). Article XIIIA limits the amount of any ad valorem tax on real property to 1% of the full cash value thereof The 1% tax is required to be collected by the counties and apportioned to the districts within the counties. Additional ad valorem taxes above the 1% may only be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978. As a result of amendments to Article XIIIA approved by California voters, on June 3, 1986 and November 7, 2000, additional ad valorem taxes above the 1% may be levied to pay debt service on bonded indebtedness for the acquisition or improvement of real property that has been approved by two-thirds of the voters and on bonded indebtedness incurred for the construction, reconstruction, rehabilitation, or replacement of school facilities, including the furnishing and equipping of school facilities, or the acquisition or lease of real property for school facilities, approved by 55% of the voters voting on the proposition.

Local property taxation in California is the responsibility of various county officers. For each school district located in a county, the county assessor computes the value of locally assessed taxable property. Based on

10 the assessed value of property and the scheduled debt service on outstanding general obligation bonds in each year, the county auditor-controller computes the rate of tax necessary to pay such debt service, and presents the tax rolls (including rates of tax for all taxing jurisdictions in the county) to the county board of supervisors for approval. The county treasurer-tax collector prepares and mails tax bills to taxpayers and collects the taxes. In addition, the treasurer-tax collector, as ex officio treasurer of each school district located in the county, holds and invests school district funds, including taxes collected for payment of school general obligation bonds, and is charged with payment of principal of and interest on such bonds when due. The State Board of Equalization also assesses certain special classes of property, as described later in this Section.

Assessed Valuation of Property Within the District

Under Proposition 13, the assessed value of ad valorem property was established as the county assessor's valuation of real property as shown on the fiscal year 1975-76 tax bill, or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred. Such assessed value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or to reflect a reduction in the consumer price index or comparable data for the taxing jurisdiction, or may be reduced in the event of declining property value caused by substantial damage, destruction, market forces or other factors. See APPENDIX A - "INFORMATION RELATING TO THE DISTRICT - FINANCIAL AND OPERATING INFORMATION - CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS." As a result, property that has been owned by the same taxpayer for many years can have an assessed value that is lower than the market value of the property. Similar property that has recently been acquired may have a higher assessed value reflecting the recent acquisition price. Increases in assessed value in a taxing area due to the change in ownership of property may occur even when the rate of inflation or consumer price index do not permit a full 2% increase or require a reduction in assessed valuation of property.

Proposition 13 has had the effect of stabilizing assessed valuation such that it does not fluctuate as significantly as the market value of property, but instead gradually changes as longer-owned properties are transferred and reassessed upon such transfer, and new construction and the remodeling and reconstruction of existing property occur.

Proposition 8 ("Proposition 8"), approved by the voters in November of 1978, subsequently amended Article XIIIA to permit reduction of the full cash value base in the event of declining property values caused by damage, destruction or other factors, to provide that there would be no increase in the full cash value base in the event of reconstruction of property damaged or destroyed in a disaster and in other minor or technical ways. Proposition 8 provides for the emollinent of the lesser of the base year value or the market value of real property, taking into account reductions in value due to damage, destruction, depreciation, obsolescence, removal of property, or other factors causing a similar decline. In these instances, the market value is required to be reviewed annually until the market value exceeds the base year value. The assessed value increases to its pre-reduction level (base year value escalated by the annual inflation rate of no more than 2%) following the year(s) for which the reduction is applied. Furthermore, assessments may be appealed by taxpayers seeking a reduction as a result of economic and other factors. See "-Appeals and Adjustments ofAssessed Valuation" below.

Property values could be reduced by factors beyond the District's control, such as a depressed real estate market due to housing industry or general economic conditions in San Diego County, the region and the State. The District is located in a seismically active area. Active fault lines lie about 15 miles west of the District. Property within the District could sustain extensive damage in a major earthquake, and a major earthquake could adversely affect local economic activity. Other possible causes for a reduction in assessed values include the complete or partial destruction of taxable property caused by other natural or manmade disasters, such as flood, fire, toxic dumping, acts of terrorism, etc., or reclassification of property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by federal, State and local agencies and property used for qualified educational, hospital, charitable or religious purposes).

In recent years, portions of California, including the County and adjacent counties, have experienced wildfires that have burned thousands of acres and destroyed thousands of homes and structures. Property damage due to wildfire could result in a significant decrease in the assessed value of property in the District.

II State law provides exemptions from ad valorem property taxation for certain classes of property such as churches, colleges, non-profit hospitals, federal trusts, and charitable institutions. State law also exempts from taxation $7,000 of the full cash value of an owner-occupied dwelling provided that the owner files for such exemption. The homeowners' exemption does not result in any loss of revenue to local agencies, since the State reimburses local agencies for the value of this exemption.

For assessment and tax collection purposes, property is classified either as "secured" or "unsecured," and is listed accordingly on separate parts of the assessment roll. The "secured roll" is that part of the assessment roll containing State-assessed property and property (real or personal) for which there is a lien on real property sufficient, in the opinion of the county assessor, to secure payment of the taxes. All other property is "unsecured," and is assessed on the "unsecured roll." State law requires that the assessment roll be finalized by August 20 of each year.

The greater the assessed value of taxable property in the District, the lower the tax rate necessary to generate taxes sufficient to pay scheduled debt service on the Bonds. The table below shows a twenty-nine year history of the District's taxable assessed valuation. The total assessed valuation of secured and unsecured property of the District for fiscal year 2018-19 is approximately $49.6 billion, resulting in a 5.9% increase in total valuation from the prior fiscal year. The District has been approached by a developer indicating a potential future request for the transfer of land with an assessed value of approximately $7.3 million (representing about 0.01 % of the District's total assessed value in 2018-19) to the Sweetwater Union High School District to better serve students that may reside on the property after development. The development project is in the Draft Environmental Impact Report stage and the District has provided written comments indicating its opposition to any proposed transfer of property between school districts. In addition, District representatives have been in communication on this proposal with the other affected districts, including the affected elementary school district counterparts, as well as the San Diego County Office of Education staff While there is little apparent support for the transfer proposal among the districts, ultimately the San Diego County Office of Education, sitting as San Diego County Committee on School District Organization, makes the final determination on any property transfer proposal and the District cannot predict the outcome of any such request.

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12 GROSSMONT UNION HIGH SCHOOL DISTRICT Summary of Taxable Assessed Valuation Fiscal Years 1990-91 to 2018-19

Fiscal Year Ending Annual% Annual Annual June 30, Total SecuredCl)C2> Change Unsecured % Change Total Valuation % Change 1991 $13,896, 795,763 10.82% $ 478,806,488 12.35% $14,375,602,251 1992 15, 113, 104,989 8.75 481,232,954 0.51 15,594,337,943 8.48% 1993 15,945,529,483 5.51 479,966,511 -0.26 16,425,495,994 5.33 1994 16,294,927,140 2.19 451,582,930 -5.91 16,746,510,070 1.95 1995 16,695,760,514 2.46 497,469,924 10.16 17,193,230,438 2.67 1996 16,857,561,131 0.97 506,606,042 1.84 17,364,167,173 0.99 1997 16,820,811,898 -0.22 515,892,035 1.83 17,336,703,933 -0.16 1998 17,009,224,500 1.12 514,253,619 -0.32 17,523,478,119 1.08 1999 17,743,880,218 4.32 585,814,497 13.92 18,329,694,715 4.60 2000 19,076,534,721 7.51 617,442,232 5.40 19,693,976,953 7.44 2001 20,352,040,217 6.69 685,889,485 11.09 21,037,929,702 6.82 2002 21,741,540,162 6.83 779,359,841 13.63 22,520,900,003 7.05 2003 23,296,637,789 7.15 771,882,592 -0.96 24,068,520,381 6.87 2004 25,180,840,862 8.09 853,134,395 10.53 26,033,975,257 8.17 2005 27,585,623,242 9.55 900,711,328 5.58 28,486,334,570 9.42 2006 31,036,108,480 12.51 942,671,612 4.66 31,978,780,092 12.26 2007 34,560,613,407 11.36 1,017,858,980 7.98 35,578,472,387 11.26 2008 37,309,204,695 7.95 1,111,632,486 9.21 38,420,837,181 7.99 2009 38,261,778,383 2.55 1,159,947,074 4.35 39,421,725,457 2.61 2010 36,228,048,586 -5.32 1,151,172,293 -0.76 37,379,220,879 -5.18 2011 35,726,274,196 -1.39 1,092,460,473 -5.10 36,818,734,669 -1.50 2012 35,929,085,384 0.57 1,054,248,404 -3.50 36,983,333,788 0.45 2013 36,042,290,810 0.32 1,008,416,103 -4.35 37,050,706,913 0.18 2014 37,070,696,416 2.85 996,572,702 -1.17 38,067,269,118 2.74 2015 38,852,923,986 4.81 995,245,520 -0.13 39,848,169,506 4.68 2016 40,997,775,550 5.52 1,011,104,565 1.59 42,008,880,115 5.42 2017 43,097,562,759 5.12 1,044,534,035 3.31 44,142,096,794 5.08 2018 45,828,350,719 6.34 1,055,353,603 1.04 46,883,704,322 6.21 2019 48,524,851,707 5.88 1,118,340,630 5.97 49,643,192,337 5.89

Annual Compound Growth, 1990-91 4.57% 3.08% 4.53% to 2018-19

Cl) Net assessed valuation including the valuation of homeowners' exemptions. C2> Includes secured local utility roll but not assessed valuation from the unitary utility roll. Source: California Municipal Statistics, Inc., and San Diego Collllty Auditor-Controller. Table prepared by Stifel, Nicolaus & Company, Incorporated.

The District, with an area of 465 square miles, includes all of the cities of El Cajon, Santee and Lemon Grove, most of the City of La Mesa, a small portion of the City of San Diego and the unincorporated communities of Alpine, Dulzura, Jamul, Lakeside and Spring Valley. The table on the following page gives a distribution of taxable property in the District by location.

13 GROSSMONT UNION HIGH SCHOOL DISTRICT 2018-19 Assessed Valuation by Jurisdiction

Assessed Valuation %of Assessed Valuation % of Jurisdiction Jurisdiction: in District District of Jurisdiction in District City ofEI Cajon $ 9,460,494,168 19.06% $9,460,494,168 100.00% City of La Mesa 7,135,505,630 14.37 $7,139,669,323 99.94 City of Lemon Grove 2,215,456,547 4.46 $2,215,456,547 100.00 City of San Diego 499,808,218 1.01 $249,614,622,851 0.20 City of Santee 6,165,642,617 12.42 $6,165,880,981 100.00 Unincorporated San Diego County 24166 285 157 48.68 $73,968,914,219 32.67 Total District $49,643,192,337 100.00%

San Diego Collllty $49,643,192,337 100.00% $526,029,984,862 9.44%

Source: California Municipal Statistics, Inc.

As a high school district, the District may issue bonds in an amount up to 1.25% of the assessed valuation of taxable property within its boundaries. Based on the fiscal year 2018-19 assessment roll, including $620,316,431 of apportioned unitary utility assessed value as determined by the County Auditor-Controller, the District's gross bonding capacity is $628.3 million, and its net bonding capacity is $51.0 million, taking into account the issuance of the Bonds. In accordance with the law which permitted the Bonds to be approved by a 55% affirmative vote, bonds approved by the District's voters under Measure BB may not be issued unless the District projects that repayment of all outstanding bonds of the authorization will require a tax rate no greater than $30.00 per $100,000 of assessed value. Based on the assessed value of taxable property in the District at the time of issuance of the Bonds and projected increases in future assessed value in accordance with Article XIIIA of the California Constitution, the District projects that the maximum tax rate required to repay all outstanding Measure BB bonds will be within the statutory limit. In its Measure BB tax rate statement, the District estimated a total tax rate necessary for repayment of all bonds issued under Measure BB to be $10.85 per $100,000 of assessed value. The District has structured the Measure BB bond program to maintain the estimated tax rate, which is below the statutory limit.

Appeals and Adjustments of Assessed Valuation. State law affords an appeal procedure to taxpayers who disagree with the assessed value of their taxable property. Taxpayers may request a reduction in assessment directly from the County Assessor (the "Assessor"), who may grant or refuse the request in whole or in part, and taxpayers may appeal an assessment directly to the County Board of Equalization, which rules on appealed assessments whether or not settled by the Assessor. The Assessor is also authorized to reduce the assessed value of any taxable property upon a determination that the market value has declined below the then-current assessment, whether or not appealed by the taxpayer. Despite a significant number of reductions since fiscal year 2009-10 pursuant to Proposition 8, assessed value in the District has increased each year since fiscal year 2011-12.

The District can make no predictions as to the changes in assessed values that might result from pending or future appeals by taxpayers or actions by the Assessor. Any reduction in aggregate District assessed valuation due to appeals, as with any reduction in assessed valuation due to other causes, will cause the tax rate levied to repay the Bonds to increase accordingly, so that the fixed debt service on the Bonds (and other outstanding bonds) may be paid. Any refund of paid taxes triggered by a successful assessment appeal will be debited by the County Treasurer against all taxing agencies who received tax revenues, including the District.

Slate-Assessed Property. Under the State Constitution, the State Board of Equalization assesses property of State-regulated transportation and communications utilities, including railways, telephone and telegraph companies, and companies transmitting or selling gas or electricity. The Board of Equalization also is required to assess pipelines, flumes, canals and aqueducts lying within two or more counties. The value of property assessed by the Board of Equalization is allocated by a formula to local jurisdictions in the county, including school districts, and taxed by the local county tax officials in the same manner as for locally assessed property. Taxes on privately owned railway cars, however, are levied and collected directly by the Board of Equalization. Property used in the generation of electricity by a company that does not also transmit or sell that electricity is taxed locally instead ofby the Board of Equalization. Thus, the reorganization of regulated utilities and the transfer of electricity-generating property to non-utility companies, as often occurred under electric power deregulation in California, affects how

14 those assets are assessed, and which local agencies benefit from the property taxes derived. In general, the transfer of State-assessed property located in the District to non-utility companies will increase the assessed value of property in the District, since the property's value will no longer be divided among all taxing jurisdictions in the County. The transfer of property located and taxed in the District to a State-assessed utility will have the opposite effect, generally reducing the assessed value in the District as the value is shared among the other jurisdictions in the County. The District is unable to predict future transfers of State-assessed property in the District and the County, the impact of such transfers on its utility property tax revenues, or whether future legislation or litigation may affect ownership of utility assets, the State's methods of assessing utility property, or the method by which tax revenues of utility property is allocated to local taxing agencies, including the District.

Assessed Valuation O{ Land Use The following table gives a distribution of taxable property located in the District by principal purpose for which the land is used, and the assessed valuation and number of parcels for each use in 2018-19. Single-family residential properties comprise 63.0% of the assessed value of property in the District.

GROSSMONT UNION HIGH SCHOOL DISTRICT 2018-19 Assessed Valuation and Parcels by Land Use

2018-19 %of No. of %of No. ofTaxable %of Non-Residential: Assessed ValuationCll Total Parcels Total Parcels Total Agncultural/Rural $ 279,571,437 0.58% 1,322 1.01 % 1,308 1.01% Commercial 4,630,032,067 9.54 3,260 2.48 3,235 2.50 Vacant Commercial 205,284,493 0.42 476 0.36 462 0.36 Industnal 1,718,729,355 3.54 1,338 1.02 1,333 1.03 Vacant Industrial 65,128,807 0.13 197 0.15 197 0.15 Recreational 71,547,733 0.15 97 0.07 97 0.07 Government/Social/Institutional/Other 70518250 0.15 1 420 LQ.il 502 0.39 Subtotal Non-Residential $7,040,812,142 14.51 % 8,110 6.18% 7,134 5.51%

Residential: Single Family Residence $30,554,863,168 62.97% 87,799 66.87% 87,667 67.70% Condominium/Townhouse 3,781,680,577 7.79 17,304 13.18 17,289 13.35 Mobile Home 577,286,810 1.19 6,359 4.84 6,337 4.89 Mobile Home Park 427,667,052 0.88 181 0.14 181 0.14 2-4 Residential Units 1,532,356,701 3.16 4,340 3.31 4,333 3.35 5+ Residential Units/Apartments 4,161,633,822 8.58 1,493 1.14 1,468 1.13 Miscellaneous Residential Improvements 18,635,116 0.04 977 0.74 977 0.75 Vacant Residential 429 569 429 0.89 4 728 3.60 ____1,llQ 3.17 Subtotal Residential $41,483,692,675 85.49% 123,181 93.82% 122,362 94.49%

Total $48,524,504,817 100.00% 131,291 100.00% 129,496 100.00%

Cll Local secured assessed valuation, excluding tax-exempt property. Source: California Municipal Statistics, Inc.

15 Assessed Valuation of Single-F arrily Residential Properties. The following table shows the distribution of single family residential parcels by increments of assessed value in 2018-19. For the fiscal year 2018-19, the average assessed value of single-family homes is $348,533, and the median assessed value is $330,627.

GROSSMONT UNION HIGH SCHOOL DISTRICT Per Parcel 2018-19 Assessed Valuation of Single Family Homes

No. of 2018-19 Average Median Parcels Assessed Valuation Assessed Valuation Assessed Valuation Single Family Residential 87,667 $30,554,863,168 $348,533 $330,627

2018-19 No. of %of Cumulative Total %of Cumulative Assessed Valuation Parcels Cl> Total % of Total Valuation Total % of Total $0 - $49,999 1,575 1.797% 1.797% $ 65,015,135 0.213% 0.213% $50,000 - $99,999 7,412 8.455 10.251 537,178,291 1.758 1.971 $100,000 - $149,999 5,294 6.039 16.290 668,772,978 2.189 4.160 $150,000 - $199,999 7,136 8.140 24.430 1,255,064,303 4.108 8.267 $200,000 - $249,999 8,991 10.256 34.686 2,022,445,995 6.619 14.886 $250,000 - $299,999 8,452 9.641 44.327 2,323,017,543 7.603 22.489 $300,000 - $349,999 8,073 9.209 53.536 2,622,113, 134 8.582 31.071 $350,000 - $399,999 8,072 9.208 62.743 3,026,449,769 9.905 40.976 $400,000 - $449,999 8,512 9.709 72.453 3,613,413,342 11.826 52.802 $450,000 - $499,999 7,021 8.009 80.461 3,321,429,316 10.870 63.672 $500,000 - $549,999 4,919 5.611 86.072 2,567,086,434 8.402 72.074 $550,000 - $599,999 3,483 3.973 90.045 1,992,877,547 6.522 78.596 $600,000 - $649,999 2,613 2.981 93.026 1,624,562,057 5.317 83.913 $650,000 - $699,999 1,732 1.976 95.002 1,161,339,196 3.801 87.714 $700,000 - $749,999 1,305 1.489 96.490 942,161,652 3.084 90.797 $750,000 - $799,999 891 1.016 97.506 686,463,832 2.247 93.044 $800,000 - $849,999 639 0.729 98.235 523,740,314 1.714 94.758 $850,000 - $899,999 432 0.493 98.728 375,956,244 1.230 95.988 $900,000 - $949,999 318 0.363 99.091 292,239,175 0.956 96.945 $950,000 - $999,999 209 0.238 99.329 202,182,530 0.662 97.606 $1,000,000 and greater _____2fill_ ___M1l 100.000 731354381 2.394 100.000 Total 87,667 100.000% $30,554,863,168 100.000%

Cl) Improved single family residential parcels. Excludes condominiums and parcels with multiple family units. Source: California Municipal Statistics, Inc.

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16 Largest Taxpayers in District The twenty taxpayers in the District with the greatest combined assessed valuation of taxable property on the 2018-19 tax roll, and the assessed valuations thereof, are shown in the following table. In 2018-19, no single taxpayer accounted for more than 0.76% of the total taxable property in the District.

GROSSMONT UNION HIGH SCHOOL DISTRICT Largest 2018-19 Local Secured Taxpayers

2018-19 %of Property Owner Primary Land Use Assessed Valuation TotaJC1l I. Comad Prebys Trust Apartments $ 368,540,042 0.76% 2. Star-West Parkway Mall LP Shopping Center 233, 170,403 048 3. Villa Marina Del LLC Apartments 163,550,880 0.34 4. Fairfield Grossman! Trolley LLC Apartments 110,183,834 0.23 5. Rainbow Investment Co. Shopping Center 105,928,797 0.22 6. BRE Paragon MF Alvista Baltimore CA Apartments 72,047,700 0.15 7. Wal-Mart Real Estate Business Trust Commercial 71,751,125 0.15 8. Waring Garden LP Apartments 70,941,000 0.15 9. SP Lavida Real LLC Convalescent Home 68,890,456 0.14 10. GKN Aerospace Chem-Ironies Inc. Industrial 62,393,566 0 13 11. Kaiser Foundation Health Plan Inc. Professional Building 60,498,295 0.12 12. Forest Park Fee Owner LLC Apartments 59,144,146 0.12 13. VSCRE Holdings LLC Convalescent Home 57,949,396 0.12 14. Essex JMS Acquisition LP Apartments 57,575,522 0.12 15. Pare One LP Apartments 57,453,540 0.12 16. FRG Corona Pointe LLC Apartments 55,969,383 0.12 17. Lysinger 1999 Trust Apartments 53,846,829 0.11 18. MMGER Apartments 53,390,470 0.11 19. Vestar Kimco Santee LP Shopping Center 50,226,410 0.10 20. Home Depot USA Inc. Commercial 48 038 429 0.10 $1,881,490,223 3.88%

Cl) 2018-19 local secured assessed valuation: $48,524,504,817. Source: California Municipal Statistics, Inc.

Tax Rates

The State Constitution permits the levy of an ad valorem tax on taxable property not to exceed I% of the full cash value of the property ( determined in accordance with the State Constitution), and State law requires the full I% tax to be levied. The levy of special ad valorem property taxes in excess of the I% levy is permitted as necessary to provide for debt service payments on school bonds and other voter-approved indebtedness.

The rate of tax necessary to pay fixed debt service on the Bonds in a given year depends on the assessed value of taxable property in that year. (Unsecured property is taxed at the secured property tax rate from the prior year.) Lower assessed values could necessitate a corresponding increase in the annual tax rate to be levied to pay the principal of and interest on the Bonds. Issuance of additional authorized bonds in the future might also cause the tax rate to increase.

One factor in the ability of taxpayers to pay additional taxes for general obligation bonds is the cumulative rate of tax. From information obtained from California Municipal Statistics, Inc., there are a total of 1,390 tax rate areas in the District in 2018-19. A representative tax rate area located within the City of El Cajon, Tax Rate Area 03-001, has a fiscal year 2018-19 assessed valuation of $1,535,865,395, representing 3.09% of the District's taxable assessed valuation. A representative tax rate area in the city of La Mesa, Tax Rate Area 05-003, has a fiscal year 2018-19 assessed valuation of $4,466,987,730, representing 9.00% of the District's assessed valuation. A representative tax rate area located in unincorporated San Diego County, Tax Rate Area 83-171, has a fiscal year 2018-19 assessed valuation of$756,736,745, representing 1.52% of the District's taxable assessed valuation.

17 The following tables summarize the total ad valorem tax rates levied by all taxing entities in Tax Rate Areas 03-001, 05-003 and 83-171 from 2014-15 through 2018-19. These are representative of tax rates in the District; other Tax Rate Areas in the District may have higher or lower tax rates.

GROSSMONT UNION HIGH SCHOOL DISTRICT Summary of Ad ValoremTax Rates $1 per $100 of Assessed Valuation

City of El Cajon -Tax Rate Area 03-001

IRA 03-001 -2018-19 Assessed Valuation: $1 535 865 395

2014-15 2015-16 2016-17 2017-18 2018-19 General $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 Cajon Valley School District .08294 .08145 .07801 .08761 .08477 Grossrnont Union High School District .06118 .06053 .05717 .06613 .06482 Grossrnont-Cuyamaca Community College District .04650 .04539 .04005 .04671 .04225 Grossrnont Healthcare .02005 .02352 .02352 .02352 .02352 Metropolitan Water District .00350 .00350 .00350 .00350 .00350 Total $1.21417 $1.21439 $1.20225 $1.22747 $1.21886

City of La Mesa - Tax Rate Area 05-003

IRA 05-003 -2018-19 Assessed Valuation: $4 466 987 730

2014-15 2015-16 2016-17 2017-18 2018-19 General $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 La Mesa-Spring Valley School District .02446 .02363 .02289 .02247 .02194 Grossrnont Union High School District .06118 .06053 .05717 .06613 .06482 Grossrnont-Cuyamaca Community College District .04650 .04539 .04005 .04671 .04225 Grossrnont Healthcare .02005 .02352 .02352 .02352 .02352 City of La Mesa .02300 .02300 .02300 .02300 .02200 Metropolitan Water District .00350 .00350 .00350 .00350 .00350 Total $1.17869 $1.17957 $1.17013 $1.18533 $1.17803

Unincorporated San Diego County- Tax Rate Area 83-171

IRA 83-171 -2018-19 Assessed Valuation: $756 736 745

2014-15 2015-16 2016-17 2017-18 2018-19 General $1.00000 $1.00000 $1.00000 $1.00000 $1.00000 La Mesa-Spring Valley School District .02446 .02363 .02289 .02247 .02194 Grossrnont Union High School District .06118 .06053 .05717 .06613 .06482 Grossrnont-Cuyamaca Community College District .04650 .04539 .04005 .04671 .04225 Grossrnont Healthcare .02005 .02352 .02352 .02352 .02352 Metropolitan Water District .00350 .00350 .00350 .00350 .00350 Total $1.15569 $1.15657 $1.14713 $1.16233 $1.15603

Source: California Municipal Statistics, Inc.

Tax Collections and Delinquencies

A school district's share of the 1% countywide tax is based on the allocation of property tax revenues to each taxing jurisdiction in the county in fiscal year 1978-79, as adjusted according to statutory modifications enacted since that time. Revenues derived from special ad valorem taxes for voter-approved indebtedness, including the Bonds, are reserved to the taxing jurisdiction that approved and issued the debt, and may only be used to repay that debt.

18 The county treasurer-tax collector prepares the property tax bills. Property taxes on the regular secured assessment roll are due in two equal installments. The first installment is due on November 1, and becomes delinquent after December 10. The second installment is due on February 1 and becomes delinquent after April 10. If taxes are not paid by the delinquent date, a 10% penalty attaches. If taxes remain unpaid by June 30, the tax is deemed to be in default. Penalties then begin to accrue at the rate of 1.5% per month. The property owner has the right to redeem the property by paying the taxes, accrued penalties, and costs within five years of the date the property went into default. If the property is not redeemed within five years, it is subject to sale at a public auction by the county treasurer

Annual bills for property taxes on the unsecured roll are generally issued in July, are due in a single payment within 30 days, and become delinquent after August 31. A 10% penalty attaches to delinquent taxes on property on the unsecured roll, and an additional penalty of 1.5% per month begins to accrue on November I. To collect unpaid taxes, the county treasurer may obtain a judgment lien upon and cause the sale of all property owned by the taxpayer in the county, and may seize and sell personal property, improvements and possessory interests of the taxpayer. The county treasurer may also bring a civil suit against the taxpayer for payment.

The date on which taxes on supplemental assessments are due depends on when the supplemental tax bill is mailed. The following table shows a recent history of secured property tax collections and delinquencies in the District for its general obligation bond debt service levy.

GROSSMONT UNION HIGH SCHOOL DISTRICT Secured Tax Charges and DelinquenciesCl) Fiscal Years 2006-07 to 2017-18

Amount Delinquent % Delinquent 2 Fiscal Year Secured Tax ChargeC ) June 30 June 30 2006-07 $ 7,203,962.19 $ 8,971.08 0.12% 2007-08 7,993,480.71 12,935.28 0.16 2008-09 10,481,274.08 12,227.56 0.12 2009-10 20,841,079.65 61,288.51 0.29 2010-11 20,809,878.38 112,946.56 0.54 2011-12 21,651,004.01 107,038.49 0.49 2012-13 21,717,775.89 125,273.32 0.58 2013-14 22,540,307.73 39,467.00 0.18 2014-15 23,435,751.65 42,410.65 0.18 2015-16 24,499,597.59 33,849.34 0.14 2016-17 21,922,519.64 27,011.09 0.12 2017-18 29,954,703.66 26,791.72 0.09

Cl) San Diego Collllty utilizes the Teeter Plan for assessment levy and distribution. This method guarantees distribution of 100% of the assessments levied to the taxing entity, with the Collllty retaining all penalties and interest. C2> District's general obligation bond debt service levy. Source: California Municipal Statistics, Inc.

Teeter Plan The Board of Supervisors of the County has adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the "Teeter Plan"), as provided for in Section 4701 et seq. of the California Revenue and Taxation Code. Under the Teeter Plan, the County distributes to each participating local tax-levying agency, including school districts, the amount levied on the secured and supplemental tax rolls, instead of the amount actually collected. In return, the County receives and retains delinquent payments, penalties and interest as collected that would have been due the local agency in the absence of the Teeter Plan.

The County's policy is that any new taxing entity that includes its levy on the County's secured and supplemental tax rolls is qualified to be included in the Teeter Plan. The Teeter Plan is to remain in effect unless the County Board of Supervisors orders its discontinuance or unless, prior to the commencement of any fiscal year of the County (which commences on July 1), the Board of Supervisors receives a petition for its discontinuance from two-thirds of the participating revenue districts in the County. The Board of Supervisors may also, after holding a public hearing on the matter, discontinue the procedures with respect to any tax levying agency or assessment

19 levying agency in the County if the rate of secured tax delinquency in that agency in any year exceeds 3% of the total of all taxes and assessments levied on the secured rolls in that agency. The County of San Diego applies the Teeter Plan to taxes levied on the secured roll for repayment of school district bonds.

Direct and Overlapping Debt The following table was prepared by California Municipal Statistics Inc., and is included for general information purposes only. The District has not reviewed this table for completeness or accuracy and makes no representations in connection therewith. The first column in the table names each public agency which had outstanding debt as of September I, 2018, and whose territory overlaps the District in whole or in part. The second column shows the percentage of each overlapping agency's assessed value located within the boundaries of the District. This percentage, multiplied by the total outstanding debt of each overlapping agency (which is not shown in the table) produces the amount shown in the third column, which is the apportionment of each overlapping agency's outstanding debt to taxable property in the District.

The table generally includes long-term obligations sold in the public credit markets by the public agencies listed. Such long-term obligations generally are not payable from revenues of the District (except as indicated) nor are they necessarily obligations secured by land within the District. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency.

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20 GROSSMONT UNION HIGH SCHOOL DISTRICT Direct and Overlapping Bonded Debt as of September 1, 2018

GROSSMONT UNION HIGH SCHOOL DISTRICT

2018-19 Assessed Valuation: $49,643,192,337

DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % ApplicableO> Debt 9/1/18 Metropolitan Water District 1.666% $ 1,009,596 Grossrnont-Cuyamaca Community College District 97.577 316,608,460 Grossmont Union High School District 100.000 534,331,376(2) Alpine Union School District 100.000 4,036,097 Cajon Valley Union School District 100.000 182,097, 755 Dehasa School District 100.000 4,561,806 Jamul-Dulzura Union School District 100.000 6,192,671 La Mesa-Spring Valley School District 100.000 21,209,849 Lakeside Union School District 100.000 36,463,179 Lemon Grove School District 100.000 28,671,711 Santee School District 100.000 51,817,505 City of La Mesa 99.939 20,027,776 Grossrnont Healthcare District 91.144 235,505,459 City of La Mesa 1915 Act Bonds 100.000 2 575 000 TOT AL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $1,445,108,240

OVERLAPPING GENERAL FUND DEBT: San Diego Collllty General Flllld Obligations 9.453% $25,827,487 San Diego Collllty Pension Obligation Bonds 9.453 48,093,555 San Diego Collllty Superintendent of Schools Obligations 9.453 1,019,506 Grossrnont-Cuyacama Conununity College District General Flllld Obligations 97.577 595,220 Alpine Union School District Certificates of Participation 100.000 3,085,000 Cajon Valley Union School District Certificates of Participation 100.000 20,284,000 La Mesa-Spring Valley School District General Flllld Obligations 100.000 12,185,321 Santee School District Certificates of Participation 100.000 29,929,849 City of La Mesa Parking Authority 99.939 2,983,179 City of San Diego General Flllld Obligations 0.203 1,118,073 City of Santee General Flllld Obligations 99.997 189,994 Fire Protection Districts Certificates of Participation 98.910-100.000 8412940 TOTAL OVERLAPPING GENERAL FUND DEBT $153,724,124

OVERLAPPING TAX INCREMENT DEBT (Successor Agencies): 0.462-100.000% $130,181,946

COMBINED TOTAL DEBT $1,729,014,310C3)

Ratios to 2018-19 Assessed Valuation: Direct Debt ($534,331,376) ...... 1.08% Total Direct and Overlapping Tax and Assessment Debt ...... 2.91 % Combined Total Debt ...... 3.48%

Ratios to Redevelopment Incremental Valuation ($4,772,231,379): Total Overlapping Tax Increment Debt ...... 2.73%

Cl) 2017-18 ratios. 2 C > Excludes Bonds to be sold. C3) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Source: California Municipal Statistics, Inc.

21 TAX MATTERS

Tax-Exempt Bonds

In the opinion of Orrick, Herrington & Sutcliffe LLP, bond counsel to the District ("Bond Counsel"), based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Tax-Exempt Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the "Code") and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Tax-Exempt Bonds is not a specific preference item for purposes of the federal alternative minimum tax. A complete copy of the proposed form of opinion of Bond Counsel is set forth in APPENDIX C hereto.

To the extent the issue price of any maturity of the Tax-Exempt Bonds is less than the amount to be paid at maturity of such Tax-Exempt Bonds ( excluding amounts stated to be interest and payable at least annually over the term of such Tax-Exempt Bonds), the difference constitutes "original issue discount," the accrual of which, to the extent properly allocable to each Beneficial Owner thereof, is treated as interest on the Tax-Exempt Bonds which is excluded from gross income for federal income tax purposes and State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Tax-Exempt Bonds is the first price at which a substantial amount of such maturity of the Tax-Exempt Bonds is sold to the public ( excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Tax-Exempt Bonds accrues daily over the term to maturity of such Tax­ Exempt Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Tax­ Exempt Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Tax-Exempt Bonds. Beneficial Owners of the Tax-Exempt Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Tax-Exempt Bonds with original issue discount, including the treatment of Beneficial Owners who do not purchase such Tax-Exempt Bonds in the original offering to the public at the first price at which a substantial amount of such Tax-Exempt Bonds is sold to the public.

Tax-Exempt Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) ("Premium Bonds") will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a Beneficial Owner's basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances.

The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Tax-Exempt Bonds. The District has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Tax-Exempt Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Tax-Exempt Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Tax-Exempt Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel's attention after the date of issuance of the Tax-Exempt Bonds may adversely affect the value of, or the tax status of interest on, the Tax-Exempt Bonds. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters.

Although Bond Counsel is of the opinion that interest on the Tax-Exempt Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of amounts treated as interest on, the Tax-Exempt Bonds may otherwise affect a Beneficial Owner's federal, state or local tax liability. The nature and extent of these other tax consequences

22 depends upon the particular tax status of the Beneficial Owner or the Beneficial Owner's other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences.

Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Tax-Exempt Bonds to be subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such legislative proposals or clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the Tax-Exempt Bonds. Prospective purchasers of the Tax-Exempt Bonds should consult their own tax advisors regarding the potential impact of any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel is expected to express no opinion.

The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel's judgment as to the proper treatment of the Tax­ Exempt Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service ("IRS") or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the District, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The District has covenanted, however, to comply with the requirements of the Code.

Bond Counsel's engagement with respect to the Tax-Exempt Bonds ends with the issuance of the Tax­ Exempt Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the District or the Beneficial Owners regarding the tax-exempt status of the Tax-Exempt Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the District and its appointed counsel, including the Beneficial Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the District legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Tax-Exempt Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Tax­ Exempt Bonds, and may cause the District or the Beneficial Owners to incur significant expense.

Taxable Bonds

In the opinion of Bond Counsel, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Taxable Bonds is not excluded from gross income for federal income tax purposes under Section 103 of the Code. Bond Counsel is of the opinion that interest on the Taxable Bonds is exempt from State of California personal income taxes. Bond Counsel expresses no opinion regarding any other tax consequences relating to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Taxable Bonds. The proposed form of opinion of Bond Counsel is contained in APPENDIX C hereto.

The following discussion summarizes certain U.S. federal tax considerations generally applicable to holders of the Taxable Bonds that acquire their Taxable Bonds in the initial offering. The discussion below is based upon laws, regulations, rulings, and decisions in effect and available on the date hereof, all of which are subject to change, possibly with retroactive effect. Prospective investors should note that no rulings have been or are expected to be sought from the IRS with respect to any of the US. federal tax consequences discussed below, and no assurance can be given that the IRS will not take contrary positions. Further, the following discussion does not deal with U.S. tax consequences applicable to any given investor, nor does it address the U.S. tax considerations applicable to all categories of investors, some of which may be subject to special taxing rules (regardless of whether or not such investors constitute U.S. Holders), such as certain U.S. expatriates, banks, REITs, RICs, insurance companies, tax-exempt organizations, dealers or traders in securities or currencies, partnerships, S corporations, estates and trusts, investors that hold their Taxable Bonds as part of a hedge, straddle or an integrated or conversion transaction, or investors whose "functional currency" is not the U.S. dollar. Furthermore, it does not address (i) alternative minimum tax consequences, (ii) the net investment income tax imposed under Section 1411 of the Code, or (iii) the indirect effects on persons who hold equity interests in a holder. This summary also does not consider the taxation of the Taxable Bonds under state, local or non-US. tax laws. In addition, this summary generally is limited

23 to US. tax considerations applicable to investors that acquire their Taxable Bonds pursuant to this offering for the issue price that is applicable to such Taxable Bonds (i.e., the price at which a substantial amount of the Taxable Bonds are sold to the public) and who will hold their Taxable Bonds as "capital assets" within the meaning of Section 1221 of the Code.

As used herein, "US. Holder" means a beneficial owner of a Taxable Bond that for US. federal income tax purposes is an individual citizen or resident of the United States, a corporation or other entity taxable as a corporation created or organized in or under the laws of the United States or any state thereof (including the District of Columbia), an estate the income of which is subject to U.S. federal income taxation regardless of its source or a trust where a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons (as defined in the Code) have the authority to control all substantial decisions of the trust ( or a trust that has made a valid election under U.S. Treasury Regulations to be treated as a domestic trust). As used herein, "Non-US. Holder" generally means a beneficial owner of a Taxable Bond (other than a partnership) that is not a US. Holder If a partnership holds Taxable Bonds, the tax treatment of such partnership or a partner in such partnership generally will depend upon the status of the partner and upon the activities of the partnership. Partnerships holding Taxable Bonds, and partners in such partnerships, should consult their own tax advisors regarding the tax consequences of an investment in the Taxable Bonds (including their status as US. Holders or Non-US. Holders).

Notwithstanding the rules described below, it should be noted that, under newly enacted law that is effective for tax years beginning after December 31, 2017 ( or, in the case of original issue discount, for tax years beginning after December 31, 2018), certain taxpayers that are required to prepare certified financial statements or file financial statements with certain regulatory or governmental agencies may be required to recognize income, gain and loss with respect to the Taxable Bonds at the time that such income, gain or loss is recognized on such financial statements instead of under the rules described below.

Prospective investors should consult their own tax advisors in determining the U.S. federal, state, local or non-US. tax consequences to them from the purchase, ownership and disposition of the Taxable Bonds in light of their particular circumstances.

U.S. Holders

Interest. Interest on the Taxable Bonds generally will be taxable to a US. Holder as ordinary interest mcome at the time such amounts are accrued or received, in accordance with the U.S. Holder's method of accounting for U.S. federal income tax purposes.

To the extent that the issue price of any maturity of the Taxable Bonds is less than the amount to be paid at maturity of such Taxable Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Taxable Bonds) by more than a de minimis amount, the difference may constitute original issue discount ("OID"). US. Holders of Taxable Bonds will be required to include OID in income for US. federal income tax purposes as it accrues, in accordance with a constant yield method based on a compounding of interest (which may be before the receipt of cash payments attributable to such income). Under this method, U.S. Holders generally will be required to include in income increasingly greater amounts of OID in successive accrual periods.

Taxable Bonds purchased for an amount in excess of the principal amount payable at maturity ( or, in some cases, at their earlier call date) will be treated as issued at a premium. A US. Holder of a Taxable Bond issued at a premium may make an election, applicable to all debt securities purchased at a premium by such US. Holder, to amortize such premium, using a constant yield method over the term of such Taxable Bond.

Sale or Other Taxable Disposition of the Taxable Bonds. Unless a nomecognition provision of the Code applies, the sale, exchange, redemption, retirement (including pursuant to an offer by the District) or other disposition of a Taxable Bond will be a taxable event for US. federal income tax purposes. In such event, in general, a US. Holder of a Taxable Bond will recognize gain or loss equal to the difference between (i) the amount of cash plus the fair market value of property received ( except to the extent attributable to accrued but unpaid interest on the Taxable Bond, which will be taxed in the manner described above) and (ii) the US. Holder's adjusted US. federal income tax basis in the Taxable Bond (generally, the purchase price paid by the US. Holder for the

24 Taxable Bond, decreased by any amortized premium, and increased by the amount of any OID previously included in income by such US. Holder with respect to such Taxable Bond). Any such gain or loss generally will be capital gain or loss. In the case of a non-corporate US. Holder of the Taxable Bonds, the maximum marginal US. federal income tax rate applicable to any such gain will be lower than the maximum marginal U.S. federal income tax rate applicable to ordinary income if such U.S. holder's holding period for the Taxable Bonds exceeds one year. The deductibility of capital losses is subject to limitations.

Defeasance of the Taxable Bonds. If the District defeases any Taxable Bond, the Taxable Bond may be deemed to be retired and "reissued" for U.S. federal income tax purposes as a result of the defeasance. In that event, in general, a holder will recognize taxable gain or loss equal to the difference between (i) the amount realized from the deemed sale, exchange or retirement (less any accrued qualified stated interest which will be taxable as such) and (ii) the holder's adjusted tax basis in the Taxable Bond.

Information Reporting and Backup Withholding. Payments on the Taxable Bonds generally will be subject to US. information reporting and possibly to "backup withholding." Under Section 3406 of the Code and applicable US. Treasury Regulations issued thereunder, a non-corporate US. Holder of the Taxable Bonds may be subject to backup withholding at the current rate of 24% with respect to "reportable payments," which include interest paid on the Taxable Bonds and the gross proceeds of a sale, exchange, redemption, retirement or other disposition of the Taxable Bonds. The payor will be required to deduct and withhold the prescribed amounts if (i) the payee fails to furnish a US. taxpayer identification number ("TIN") to the payor in the manner required, (ii) the IRS notifies the payor that the TIN furnished by the payee is incorrect, (iii) there has been a "notified payee underreporting" described in Section 3406( c) of the Code or (iv) the payee fails to certify under penalty of perjury that the payee is not subject to withholding under Section 3406(a)(l)(C) of the Code. Amounts withheld under the backup withholding rules may be refunded or credited against the US. Holder's federal income tax liability, if any, provided that the required information is timely furnished to the IRS. Certain U.S. holders (including among others, corporations and certain tax-exempt organizations) are not subject to backup withholding. A holder's failure to comply with the backup withholding rules may result in the imposition of penalties by the IRS.

Non-U.S. Holders

Interest. Subject to the discussions below under the headings "Information Reporting and Backup Withholding" and "FATCA," payments of principal of, and interest on, any Taxable Bond to a Non-US. Holder, other than (I) a controlled foreign corporation, as such term is defined in the Code, which is related to the District through stock ownership and (2) a bank which acquires such Taxable Bond in consideration of an extension of credit made pursuant to a loan agreement entered into in the ordinary course of business, will not be subject to any U.S. federal withholding tax provided that the beneficial owner of the Taxable Bond provides a certification completed in compliance with applicable statutory and regulatory requirements, which requirements are discussed below under the heading "Information Reporting and Backup Withholding," or an exemption is otherwise established.

Disposition of the Taxable Bonds. Subject to the discussions below under the headings "Information Reporting and Backup Withholding" and "FATCA," any gain realized by a Non-US. Holder upon the sale, exchange, redemption, retirement (including pursuant to an offer by the District or a deemed retirement due to defeasance of the Taxable Bond) or other disposition of a Taxable Bond generally will not be subject to US. federal income tax, unless (i) such gain is effectively connected with the conduct by such Non-US. Holder of a trade or business within the United States; or (ii) in the case of any gain realized by an individual Non-US. Holder, such holder is present in the United States for 183 days or more in the taxable year of such sale, exchange, redemption, retirement (including pursuant to an offer by the District) or other disposition and certain other conditions are met.

US. Federal Estate Tax. A Taxable Bond that is held by an individual who at the time of death is not a citizen or resident of the United States will not be subject to US. federal estate tax as a result of such individual's death, provided that, at the time of such individual's death, payments of interest with respect to such Taxable Bond would not have been effectively connected with the conduct by such individual of a trade or business within the United States.

Information Reporting and Backup Withholding. Subject to the discussion below under the heading "FATCA," under current U.S. Treasury Regulations, payments of principal and interest on any Taxable Bonds to a

25 holder that is not a United States person will not be subject to any backup withholding tax requirements if the beneficial owner of the Taxable Bond or a financial institution holding the Taxable Bond on behalf of the beneficial owner in the ordinary course of its trade or business provides an appropriate certification to the payor and the payor does not have actual knowledge that the certification is false. If a beneficial owner provides the certification, the certification must give the name and address of such owner, state that such owner is not a United States person, or, in the case of an individual, that such owner is neither a citizen nor a resident of the United States, and the owner must sign the certificate under penalties of perjury. The current backup withholding tax rate is 24%.

Foreign AccountTaxCorrplianceAct (" FATCA")-U.S. Holders and Non-U.S. Holders

Sections 1471 through 1474 of the Code, impose a 30% withholding tax on certain types of payments made to foreign financial institutions, unless the foreign financial institution enters into an agreement with the U.S. Treasury to, among other things, undertake to identify accounts held by certain US. persons or US.-owned entities, annually report certain information about such accounts, and withhold 30% on payments to account holders whose actions prevent it from complying with these and other reporting requirements, or unless the foreign financial institution is otherwise exempt from those requirements. In addition, FAT CA imposes a 30% withholding tax on the same types of payments to a non-financial foreign entity unless the entity certifies that it does not have any substantial U.S. owners or the entity furnishes identifying information regarding each substantial U.S. owner. Failure to comply with the additional certification, information reporting and other specified requirements imposed under FAT CA could result in the 30% withholding tax being imposed on payments of interest and principal under the Taxable Bonds and sales proceeds of Taxable Bonds held by or through a foreign entity. In general, withholding under FATCA currently applies to payments of US. source interest (including OID) and, under current guidance, will apply to (i) gross proceeds from the sale, exchange or retirement of debt obligations paid after December 31, 2018 and (ii) certain "passthru" payments no earlier than January 1, 2019. Prospective investors should consult their own tax advisors regarding FAT CA and its effect on them.

The foregoing summary is included herein for general information only and does not discuss all aspects of U.S. federal taxation that may be relevant to a particular holder of Taxable Bonds in light of the holder's particular circumstances and income tax situation. Prospective investors are urged to consult their own tax advisors as to any tax consequences to them from the purchase, ownership and disposition of Taxable Bonds, including the application and effect of state, local, non-US., and other tax laws.

OTHER LEGAL MATTERS

Possible Limitations on Remedies; Bankruptcy

General. Following is a discussion of certain considerations relating to potential bankruptcies of school districts in California. It is not an exhaustive discussion of the potential application of bankruptcy law to the District. State law contains a number of safeguards to protect the financial solvency of school districts. See APPENDIX A - "INFORMATION RELATING TO THE DISTRICT - FINANCIAL AND OPERATING INFORMATION - SCHOOL DISTRICT BUDGET PROCEDURES AND REQUIREMENTS - District Budget Process and County Review." If the safeguards are not successful in preventing a school district from becoming insolvent, the State Superintendent of Public Instruction (the "State Superintendent"), operating through an administrator appointed by the State Superintendent, may be authorized under State law to file a petition under Chapter 9 of the United States Bankruptcy Code (the "Bankruptcy Code") on behalf of a district for the adjustment of its debts, assuming that such district meets certain other requirements contained in the Bankruptcy Code necessary for filing such a petition. School districts under current State law are not themselves authorized to file a bankruptcy proceeding, and they are not subject to involuntary bankruptcy.

Bankruptcy courts are courts of equity and as such have broad discretionary powers. If the District were to become the debtor in a proceeding under Chapter 9 of the Bankruptcy Code, the parties to the proceedings may be prohibited from taking any action to collect any amount from the District (including advalorem tax revenues) or to enforce any obligation of the District, without the bankruptcy court's permission. In such a proceeding, as part of its plan of adjustment in bankruptcy, the District may be able to alter the priority, interest rate, principal amount, payment terms, collateral, maturity dates, payment sources, covenants (including tax-related covenants), and other terms or provisions of the Bonds and other transaction documents related to the Bonds, if the bankruptcy court were

26 to determine that the alterations were fair and equitable. In addition, in such a proceeding, as part of such a plan, the District may be able to eliminate the obligation of the County to raise taxes if necessary to pay the Bonds. There also may be other possible effects of a bankruptcy of the District that could result in delays or reductions in payments on the Bonds. Moreover, regardless of any specific adverse determinations in any District bankruptcy proceeding, a District bankruptcy proceeding could have an adverse effect on the liquidity and market price of the Bonds.

As stated above, if a school district were to go into bankruptcy, the bankruptcy petition would be filed under Chapter 9 of the Bankruptcy Code. Chapter 9 provides that it does not limit or impair the power of a state to control, by legislation or otherwise, a municipality of or in such state in the exercise of the political or governmental powers of such municipality, including expenditures for such exercise. For purposes of the language of Chapter 9, a school district is a municipality. State law provides that the ad valorem taxes levied to pay the principal and interest on the Bonds shall be used for the payment of principal and interest of the District's general obligation bonds and for no other purpose. If this restriction on the expenditure of such ad valorem taxes is respected in a bankruptcy case, then the ad valorem tax revenue could not be used by the District for any purpose other than to make payments on the Bonds. It is possible, however, that a bankruptcy court could conclude that the restriction should not be respected.

Statutory Lien. Pursuant to SB 222 that became effective on January I, 2016, all general obligation bonds issued by local agencies in California, including the Bonds, will be secured by a statutory lien on all revenues received pursuant to the levy and collection of the tax. SB 222 provides that the lien will automatically arise, without the need for any action or authorization by the local agency or its governing board, and will be valid and binding from the time the bonds are executed and delivered. Although a statutory lien would not be automatically terminated by the filing of a Chapter 9 bankruptcy petition by the District, the automatic stay provisions of the Bankruptcy Code would apply and payments that become due and owing on the Bonds during the pendency of the Chapter 9 proceeding could be delayed unless the Bonds are determined to be secured by a pledge of "special revenues" within the meaning of the Bankruptcy Code and the pledged ad valorem taxes are applied to pay the Bonds in a manner consistent with the Bankruptcy Code.

Special Ra,enues. If the ad valorem tax revenues that are pledged to the payment of the Bonds (see "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS - Pledge of Tax Revenues") are determined to be "special revenues" within the meaning of the Bankruptcy Code, then the application in a manner consistent with the Bankruptcy Code of the pledged ad valorem revenues that are collected after the date of the bankruptcy filing should not be subject to the automatic stay. "Special revenues" are defined to include, among others, taxes specifically levied to finance one or more projects or systems of the debtor, but excluding receipts from general property, sales, or income taxes levied to finance the general purposes of the debtor. The District has specifically pledged the ad valorem taxes for payment of the Bonds. Additionally, the ad valorem taxes levied for payment of the Bonds are permitted under the State Constitution only where either (i) the applicable bond proposition is approved by 55% of the voters and such proposition contains a specific list of school facilities projects, or (ii) if the applicable bond proposition is approved by two-thirds of voters and such bonds must be issued for the acquisition or improvement of real property. Because State law prohibits the use of the tax proceeds for any purpose other than payment of the bonds and the bond proceeds can only be used to fund the acquisition or improvement of real property and other capital expenditures included in the proposition, such tax revenues appear to fit the definition of special revenues. However, there is no binding judicial precedent dealing with the treatment in bankruptcy proceedings of ad valorem tax revenues collected for the payments of bonds in California, so no assurance can be given that a bankruptcy court would not hold otherwise.

In addition, even if the ad valorem tax revenues are determined to be "special revenues," the Bankruptcy Code provides that special revenues can be applied to necessary operating expenses of the project or system, before they are applied to other obligations. This rule applies regardless of the provisions of the transaction documents. Thus, a bankruptcy court could determine that the District is entitled to use the ad valorem tax revenues to pay necessary operating expenses of the District and its schools, before the remaining revenues are paid to the owners of the Bonds.

A number of appeals are currently pending before the United States Court of Appeals for the First Circuit involving issues relating to the treatment and scope of special revenues in the insolvency proceedings of Puerto

27 Rico. The decisions in these appeals may or may not affect the treatment or scope of special revenues in bankruptcy cases. It is not possible predict the outcomes or the effects of the outcomes in these appeals.

Possession of Tax Ra,enues; Remedies. If the County or the District goes into bankruptcy and has possession of tax revenues (whether collected before or after commencement of the bankruptcy), and if the County or the District, as applicable, does not voluntarily pay such tax revenues to the owners of the Bonds, it is not clear what procedures the owners of the Bonds would take or how effective they would be in obtaining possession of such tax revenues.

Opinion of Bond Counsel Qualified 0y Reference to Bankruptcy, Insolvency and Other Laws Relating to or Affecting Creditor's Rights The proposed form of opinion of Bond Counsel, attached hereto as APPENDIX C, is qualified by reference to bankruptcy, insolvency and other laws relating to or affecting creditor's rights.

Amounts Held in County Treasury Pool

The County on behalf of the District is expected to be in possession of the annual ad valorem property taxes and certain funds to repay the Bonds and may invest these funds in the County's Treasury Pool, as described in Appendix E - "SAN DIEGO COUNTY INVESTMENT POOL" Should those investments suffer any losses, there may be delays or reductions in payments on the Bonds.

Legal Opinion

The validity of the Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, San Francisco, California, Bond Counsel. A complete copy of the proposed form of opinion of Bond Counsel is contained in APPENDIX C hereto. Bond Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement.

Legality for Investment in California

Under provisions of the Financial Code of the State, including Financial Code Section 1510(d), the Bonds are legal investments for commercial banks in the State to the extent that the Bonds, in the informed opinion of the bank, are prudent for the investment of funds of its depositors. Under provisions of the Government Code of the State, the Bonds are eligible securities for deposits of public moneys in the State.

Continuing Disclosure

The District has covenanted for the benefit of the holders and Beneficial Owners of the Bonds to provide certain financial information and operating data relating to the District (the "Annual Report") by not later than nine months following the end of the District's fiscal year (currently ending June 30), commencing with the report for fiscal year 2017-18 (which is due no later than April 1, 2019), and to provide notices of the occurrence of certain enumerated events. The Annual Report will be filed by the District with the Municipal Securities Rulemaking Board ("MSRB"). The notices of enumerated events will be filed by the District with the MSRB. The specific nature of the information to be contained in the Annual Report or the notices of enumerated events is summarized in APPENDIX D - "PROPOSED FORM OF CONTINUING DISCLOSURE CERTIFICATE." These covenants have been made in order to assist the Underwriters in complying with Securities and Exchange Commission Rule 15c2-12(b)(5).

During the five-year period preceding the date of this Official Statement, the District failed to timely file certain material event notices and financial operating information required by the terms of its previous undertakings relating to previous issues of general obligation bonds, including but not limited to certain annual reports. In particular, the District's Annual Report for the 2012-13 fiscal year required to be filed on April 1, 2014 was filed on June 19, 2014. Prior to making such late filings, the District did not provide specific notice that the annual financial reports were not timely filed. In addition, the District failed to file on a timely basis notices of an insurer-related rating change, with respect to certain issues of bonds.

The District entered into an undertaking in connection with the issuance by the San Diego County Educational Facilities Authority No. 1 of its 2003 Lease Revenue Refunding Bonds. With respect to this

28 undertaking, the District filed its audited financial statements for fiscal years 2013-14 and 2014-15 in a timely manner; however, the District failed to make the required filings for fiscal year 2012-13 in a timely manner. In addition, the District failed to file financial operating information relating to developer fee collections and contractual agreements with employee bargaining units required to be filed by such undertaking. In May, 2015, the District made corrective filings of all of the required financial operating information relating to developer fee collections and certain of the required financial operating information relating to bargaining units. In February, 2016, the District made corrective filings of all of the remaining required financial operating information relating to bargaining units. In October 2016, the District failed to file notice of a rating change on the 2003 Lease Revenue Refunding Bonds. Such 2003 Lease Revenue Refunding Bonds have been paid in full and are no longer outstanding.

The District has registered with the MSRB's Electronic Municipal Market Access (EMMA) to receive reminders of filing dates for Annual Reports.

Alpine Unification Petition and Termination of Related Litigation

The Alpine Union School District ("Alpine"), one of the District's eight feeder elementary school districts, serves elementary and middle school students residing in the unincorporated community of Alpine, located in the mountain foothills in the eastern portion of the District, with approximately 800 high school students from the area currently attending high schools in the District.

On October 23, 2013, registered voters of Alpine filed a petition with the San Diego County Superintendent of Schools requesting the reorganization of Alpine into a unified school district serving grades K-12 within the boundary lines of the existing Alpine Union School District (the "Alpine Unification Petition"). The primary objective of the Alpine Unification Petition was to require a high school to be constructed in Alpine. A sufficient number of signatures to the petition were obtained and on September 19, 2014, the San Diego County Office of Education transmitted the Alpine Unification Petition to the State Board of Education ("SBE") for final approval. In January 2018, the petition was denied by the SBE; such denial is not subject to appeal and no further action will be taken on it.

In October 2014, Alpine and a taxpayers' association sued the District and Ralf Swenson, former Superintendent of the District, claiming that the District expended bond funds on projects not authorized by Proposition U The plaintiffs sought a preliminary injunction on that basis. In January 2015, the Superior Court for the County of San Diego rejected plaintiffs' claim that the District expended bond funds on projects not authorized by Proposition U Nonetheless, the Court granted a preliminary injunction in plaintiffs' favor requiring the District to set aside $42 million by January 2016 for potential expenditure on one of the projects identified in Proposition U, specifically a school in the Alpine area. In April 2016, following trial, the Court entered judgment in favor of the District on all claims and awarded costs to the District. Alpine and the taxpayers' association appealed from the judgment. On January 18, 2018, the California Court of Appeal denied Alpine's appeal in its entirety, finding that the District is neither obligated nor authorized to build a new school in Alpine at this time because Proposition U' s emollinent condition for building a new school has not been met. Thereafter, the District, Alpine, and the taxpayers' association entered into a settlement agreement under which Alpine and the taxpayers' association agreed to forego any further appeals of the action. Hence, the action is now concluded.

The District cannot predict whether any future efforts to unify Alpine may be initiated, whether any such efforts might succeed, or if they do, the effect such success would have on the number and value of taxable properties within the District subject to ad valorem taxation for repayment of the Bonds. Regardless, under State law, the Bonds would continue to be payable from an unlimited ad valorem tax levied in the determined areas.

Litigation

No litigation is pending or threatened concerning the validity of the Bonds, or the District's ability to receive ad valorem taxes and to collect other revenues, or contesting the District's ability to issue and retire the Bonds. The District is not aware of any litigation pending or threatened questioning the political existence of the District or contesting the title to their offices of District or County officials who will sign the Bonds and other certifications relating to the Bonds, or the powers of those offices. A certificate ( or certificates) to that effect will be furnished to the Underwriters at the time of the original delivery of the Bonds.

29 There are a few lawsuits and claims pending against the District. In the opinion of the District, the aggregate amount of the uninsured liabilities of the District under such lawsuits and claims will not materially affect the finances of the District.

MISCELLANEOUS

Ratings

The Bonds have received the rating of "AAA" by Fitch Ratings ("Fitch") and "Aa2" by Moody's Investors Service ("Moody's"). A rating agency generally bases its rating on its own investigations, studies and assumptions. The District has provided certain additional information and materials to the rating agencies (some of which does not appear in this Official Statement). Such ratings reflect only the views of the rating agencies, and any explanation of the significance of such ratings may be obtained from the rating agencies furnishing such ratings, from Fitch at www.fitchratings.com and Moody's at www.moodys.com. The information set forth on such websites is not incorporated herein by reference. There is no assurance that any rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by the respective rating agency, if, in the judgment of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of a rating may have an adverse effect on the market price of the Bonds. The District undertakes no responsibility to oppose any such downward revision, suspension or withdrawal.

Professionals Involved in the Offering

Orrick, Herrington & Sutcliffe LLP is acting as Bond Counsel to the District and as Disclosure Counsel, and will receive compensation from the District contingent upon the sale and delivery of the Bonds. KNN Public Finance, LLC is acting as Municipal Advisor with respect to the Bonds, and will receive compensation from the District contingent upon the sale and delivery of the Bonds. Certain matters will be passed on for the Underwriters by their counsel, Stradling Yocca Carlson & Rauth, a Professional Corporation, which will receive compensation contingent upon sale and delivery of the Bonds.

Underwriting

The Bonds are being purchased by Stifel, Nicolaus & Company, Incorporated, as representative of itself and Citigroup Global Markets Inc. (collectively, the "Underwriters"), pursuant to the terms of a bond purchase contract between the District, the County and the Underwriters, dated October 10, 2018. The Underwriters have agreed to purchase the Bonds from the District at a purchase price of $46,024,308.00. The Underwriters' discount is $177,590.00. Under the terms of the contract, the Underwriters will be obligated to purchase all of the Bonds if any are purchased, the obligation to make such purchase being subject to certain terms and conditions to be satisfied by the District.

Citigroup Global Markets Inc., an underwriter of the Bonds, has entered into a retail distribution agreement with Fidelity Capital Markets, a division of National Financial Services LLC (together with its affiliates, "Fidelity"). Under this distribution agreement, Citigroup Global Markets Inc. may distribute municipal securities to retail investors at the original issue price through Fidelity. As part of this arrangement, Citigroup Global Markets Inc. will compensate Fidelity for its selling efforts.

The Underwriters may offer and sell the Bonds to certain dealers and others at prices lower than the offering prices stated on the inside cover page. The offering prices may be changed from time to time by the Underwriters.

30 Additional Information

Quotations from and summaries and explanations of the Bonds, the District Resolution and the Paying Agent Agreement providing for issuance and payment of the Bonds, and the constitutional provisions, statutes and other documents described herein, do not purport to be complete, and reference is hereby made to said documents, constitutional provisions and statutes for the complete provisions thereof.

The District has duly authorized the delivery of this Official Statement.

GROSSMONT UNION IDGH SCHOOL DISTRICT

By: /s/ Scott H. Patterson Deputy Superintendent, Business Services

31 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX A

INFORMATION RELATING TO THE DISTRICT

Any information in the following appendix that indicates it has been obtained from a third-party has been obtained from sources which are believed to be reliable, but the District makes no guarantee as to the accuracy or completeness thereof and is not to be construed as a representation by the District the Underwriters or the Municipal Advisor.

Prospective purchasers of the Bonds should be aware that the tables below, which demonstrate historical income, employment, sales and other figures, may not be accurate predictors offature trends, nor do they provide an entirely current report of economic circumstances as of the date of printing of this Official Statement. The historical data displayed in this Section is derived from a number of third-party sources from data accumulated over time, and thus cannot be presented on a real-time basis.

A-1 PART I

THE ECONOMY OF THE DISTRICT

The District encompasses all of the cities ofEl Cajon, Santee and Lemon Grove, most of the city of La Mesa, a small portion of the city of San Diego, as well as adjacent unincorporated areas of the County. The following economic data for selected cities and the County are presented/or information purposes only. The Bonds are not a debt or obligation of the cities or the County.

General

The District is located in eastern San Diego County, encompassing a large portion of the urbanized area of the east county as well as foothill communities of the Cuyamaca Mountains. The District is traversed by US. Interstate Highway 8, State Route 94, State Route 125, and State Route 67.

The District is located about 12 miles east of downtown San Diego, the County seat, and the San Diego International Airport.

The local economy is closely tied to federal spending and actions taken by the federal government to reduce local expenditures could adversely affect the County's economy.

Population

The table below shows the recent population growth for the County and for the cities of El Cajon, La Mesa, Lemon Grove, and Santee. The population of the four cities in 2018 accounted for approximately 7.5% of the population of the County.

POPULATION GROWTH San Diego County and Cities Within Grossmont Union High School District 2000-2017

City of City of City of City of County of Year El Cajon La Mesa Santee Lemon Grove San Diego 2000 94,869 54,749 52,946 24,918 2,813,833 2001 96,054 55,224 53, 138 25,136 2,849,238 2002 96,432 55,414 52,770 25,169 2,890,256 2003 96,939 55,578 52,474 25,235 2,927,216 2004 97,354 55,547 52, 142 25,228 2,953,703 2005 97,364 55,354 52, 110 25,078 2,966,783 2006 96,699 55,098 51,983 24,878 2,976,492 2007 97,027 55,452 51,936 24,873 2,998,477 2008 97,684 55,753 52,367 24,949 3,032,689 2009 98,363 56, 148 52,963 25,037 3,064,436 2010 99,478 57,065 53,413 25,320 3,095,313 2011 99,697 58,412 54,050 25,510 3,119,963 2012 100,985 58,846 54,478 25,600 3,153,521 2013 102,078 59,427 55,403 25,799 3,193,688 2014 102,747 59,805 55,987 26,083 3,230,269 2015 103,981 60, 181 56, 104 26,402 3,264,449 2016 104,577 60,735 56,014 26,477 3,284,477 2017 105,276 60,980 56,434 26,710 3,309,509 2018 105,557 61,261 56,994 26,834 3,337,456

Note: For 2001-09 and 2011-18, population statistics are as of January 1. For 2000 and 2010, population statistics are as of April 1. Sowces: State Department of Finance for 2001-09, 2011-18; U.S. Department of Commerce, Bureau of the Census, for 2000 and 2010.

Employment

The following table summarizes wage and salary employment in the County from 2013 to 2017. The total wage and salary employment in the County increased by 10.1 % between 2013 and 2017. Employment was highest in 2017 for this five­ year period. A-2 ANNUALAVERAGEWAGEANDSALARYEMPLOYMENT County of San Diego 2013-2017

Employment (l) Industry 2013 2014 2015 2016 2017 Total Farm 9,800 9,400 9,100 8,900 8,600 Mining and Logging 400 400 300 300 300 Construction 60,900 63,800 69,900 76,300 79,300 Manufacturing 99,000 101,600 106,200 108,000 109,000 Trade, Transportation & Utilities 212,400 215,000 221,900 224,800 228,200 Information 24,300 24,400 24,200 24,100 24,400 Financial Activities 70,800 69,400 71,200 72,700 74,100 Professional & Business Services 221,600 224,900 227,200 231,200 233,500 Educational and Health Services 181,000 186,000 192,700 198,700 204,500 Leisure and Hospitality 168,600 177,000 183,900 191,100 196,400 Other Services 49,300 52,000 53,200 54,400 54,900 Government 229,500 231,900 236,200 242,200 248, 100 Total 1,327,500 1,355,900 1,396,000 1,432,700 1,461,300

Cl) Employment is reported by place of work; it does not include persons involved in labor-management disputes. Figures are rounded to the nearest hundred. Columns may not add to totals due to rollllding. Source: California Employment Development Department, based on March 2017 benchmark.

The following table summarizes civilian labor force, employment, and unemployment in the County from 2007 to 2017. The County's civilian labor force increased by approximately 4.6% between 2007 and 2017. In the same period, the employed labor force in the County increased by approximately 5.2% and the unemployed labor force in the County decreased by approximately 0.6%. The unemployment rate in the County in 2017 was 4.0%.

CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT County of San Diego Annual Averages, 2007-2017

Civilian Employed Unemployed Unemployment 3 Year Labor Force Labor Force (l) Labor Force (z) Rate C l 2007 1,515,400 1,446,300 69,000 4.6% 2008 1,545,800 1,452,600 93,200 6.0 2009 1,554,300 1,408,300 146,000 9.4 2010 1,515,200 1,352,300 162,900 10.8 2011 1,524,600 1,367,200 157,300 10.3 2012 1,542,800 1,402,000 140,800 9.1 2013 1,547,000 1,425,900 121,100 7.8 2014 1,549,800 1,450,300 99,500 6.4 2015 1,563,800 1,482,500 81,300 5.2 2016 1,570,400 1,497,000 73,500 4.7 2017 1,584,700 1,521,200 63,500 4.0

Cl) Includes persons involved in labor-management trade disputes. C2> Includes all persons without jobs who are actively seeking work. C3) The llllernployrnent rate is computed from unrollllded data; therefore, it may differ from rates computed from rollllded figures in this table. Source: California Employment Development Department, based on Industry Employment & Labor Force March 2017 Benchmark.

A-3 Major Employers

The largest employers in the City of El Cajon, City of La Mesa, and in the County are as follows:

TEN LARGEST EMPLOYERS City of El Cajon

Fiscal Year2016-17 Firm Service Employment Cajon Valley Union School District Education l,612C1J GKN Aerospace Chem-Ironies, Inc. Manufacturer 749(2) Grossmont-Cuyamaca Community College District Education 725(3) Grossman! Union High School District Education 482C4) Wal-Mart Retailer 408 City of El Cajon Local Government 402 Taylor Guitars Manufacturing 382 Country Hills Health Care Inc. Health Care 380 Home Depot Retailer 357 University Mechanical and Engineering Construction 334

Cl) Includes full-time classified and certificated employees, certificated administrators, management and supervisory. C2> Includes full-time employees only. C3) Includes full-time classified and certificated employees at school sites in El Cajon only and the district office. C4) Includes four high schools in El Cajon only. Source: City of El Cajon Comprehensive Annual Financial Report Fiscal Year Ended Jlllle 30, 2017.

TEN LARGEST EMPLOYERS City of La Mesa

Number of Employer Employees(!) Sharp/Grossman! Hospital 3,600 La Mesa-Spring Valley School District 1,800 Wahn art (2 locations) 406 Kaiser Permanente 317 AAA Auto Club 315 Costco 314 City of La Mesa 310 Grossmont Gardens Retirement Center 272 Alvarado Parkway Institute 260 Target Stores 220

Cl) As of Jlllle 30, 2016. Most recent data available. Source: City of La Mesa City Manager's Office.

A-4 LARGEST EMPLOYERS"' County of San Diego

San Diego County Employees Firm Service 2017(2) University of California, San Diego Higher education, research, health care 32,524 Sharp HealthCare Health care, hospitals, medical groups, health services, health plans 17,962 Scripps Health Hospitals, hospice, home health care services, outpatient centers and clinics, physician offices 15,238 Qualcomm Inc. Next generation mobile technology 12,600 City of San Diego Municipal government, public agency 11,544 Kaiser Permanente Nonprofit health maintenance hospital, outpatient medical, urgent care, medical offices 8,965 UC San Diego Health Academic health system 8,923 San Diego Community College District Higher ech.ication institution that includes City, Mesa and Miramar colleges 6,817 San Diego State University Higher education 5,921 General Atomics Aeronautical Systems Inc. Remotely piloted aircraft systems, radars, electro-optic and related systems 5,888 Rady Children's Hospital-San Diego Health care for children, regional pediatric trauma center 5,297 YMCA of San Diego County Social services to San Diego County 5,172 Northrop Grumman Corp. Unmanned systems, Cyber solutions, C4ISR Logistics 4,978 Sempra Energy Energy services holding company 4,782 BD (Becton, Dickinson and Co.) Medical technology 3,975 Veterans Affairs San Diego Healthcare System Health care for veterans in inpatient, outpatient settings 3,805 SeaWorld San Diego Marine park 3,740 University of San Diego Private university 3,565 General Dynamics NASSCO Design, construction, repair of oceangoing vessels for the U.S. Navy and commercial customers 3,576 Barona Resort & Casino Gaming, hospitality 3,176 Grossmont-Cuyamaca Community College District Education, training 2,779 Palomar College Community college 2,393 Sycuan Casino Gaming, entertainment 2,203 Tri-City Medical Center Tri-City Medical Center 2,158 Pala Casino Spa & Resort Casino, hotel, spa, restaurant, entertainment 2,121 California State University San Marcos Four-year public university 2,000 UTC Aerospace Systems - Aerostructures Design, manufacture, support of nacelle systems for commercial and military airplanes 1,911 Rubio's Restaurants Inc. Fish tacos and Mexican-inspired coastal food 1,403 Southwestern Community College District Community college 1,389 Jack in the Box Inc. Jack in the Box and Qdoba Mexican Grill restaurants 1,380 City of Chula Vista Police, fire, recreation, library, streets, sewer 1,320 Cubic Corporation Transportation, defense & secure communications markets 1,270 San Ysidro Health Center Nonprofit, community clinic system offering primary care, dental and behavioral health services 1,250 CymerLLC Light source technology for advanced integrated circuits 1,236 Leidos Science & technology solutions and services 1,179 AJ\IIN Healthcare Services Inc. Health care staffing, workforce solutions 1,112 City of Escondido City government 1,020 Manchester Grand Hyatt San Diego Hotel, hospitality 918 Mitchell International Inc. Technology, soft\vare solutions for property & casualty claims, collision industries 767 Hologic Inc. Developer, manufacturer and supplier of diagnostic products, medical devices 752 Guild Mortgage Co. Mortgage lender 705 Garden Fresh Restaurants LLC Buffet diners 650 Sheraton San Diego Hotel & Marina Hotel, hospitality 587 Port of San Diego Government agency 583 KYOCERA Wireless phones, document equipment, solar energy, microelectronic packaging, ceramics, LCDs 545 Paradise Point Resort & Spa Resort, hospitality 490 Marsh & McLennan Agency LLC Risk management, employee benefits, executive liability, retirement, compensation consulting 416 Ionis Pharmaceuticals, Inc. RNA-targeted drug discovery and development 385 Boys & Girls Clubs of Greater San Diego Youth programs and guidance 275 National Funding Inc. Small business loans, equipment leasing, fintech 188 Lusardi Construction Co. Commercial general contractor 179 Baker Electric Solar Solar power & energy storage systems 159 CUSO Financial Services LP Credit union investment programs, insurance, training & program support 144 RJS Lw.v Tax law firm 25

(!J Reflects only those employers who chose to participate in the survey process and does not include some school districts within the County of San Diego, such as the District. C2J Number of local employees as of October 2016. Source: San Diego Business Journal 2017 Book of Lists. Source only reports businesses responding to their survey and did not receive a response from the U.S. government, which employed over45,000 workers in the County of San Diego in 2014 according to San Diego Sourcebook.

A-5 Construction Activity

The level of construction activity in the cities of El Cajon and La Mesa and in the County as measured by total building valuations and number of residential units is shown in the following tables for the period from 2012 to 2017.

BUILDING PERMIT ACTIVITY City of El Cajon 2012-2017

2012 2013 2014 2015 2016 2017 Valuation ($000): Residential $3, 169 $ 8,902 $ 7,261 $28,608 $27,564 $14,748 Non-residential 8,423 14,567 14,808 13,382 11,036 24,396 Total $11,592 $23,469 $22,069 $41,990 $38,600 $39,144

Dwelling Units: Single family 15 18 15 98 76 40 Multiple family 4 7 6 0 0 0 Total 19 25 21 98 76 40

Source: Construction Industry Research Board.

BUILDING PERMIT ACTIVITY City of La Mesa 2012-2017

2012 2013 2014 2015 2016 2017 Valuation ($000): Residential $4,610 $10,473 $41,973 $9,044 $11,934 $ 2,784 Non-residential 4,099 4,394 5,826 6,409 5,252 15,716 Total $8,709 $14,867 $47,799 $15,453 $17, 186 $18,500

Dwelling Units: Single Family 20 34 41 15 4 4 Multi-Family 0 0 267 13 95 0 Total 20 34 308 28 99 4

Source: Construction Industry Research Board.

BUILDING PERMIT ACTIVITY County of San Diego 2012-2017

2012 2013 2014 2015 2016 2017 Valuation ($000) Residential $ 773,429 $2,079,565 $1,815,853 $2,446,575 $2,472,237 $2,632,826 Non-residential 1,235,685 1,405,194 1,920,627 1,856,556 1,782,421 2,371,303 Total $2,009,114 $3,484,759 $3,736,480 $4,303,131 $4,254,658 $5,004,129

Dwelling Units: Single Family 2,100 2,575 2,254 3,136 2,420 3,960 Multi-Family 4,319 5,807 4,329 6,915 7,680 6,056 Total 6,419 8,382 6,583 10,051 10,100 10,016

Source: Construction Industry Research Board.

A-6 Foreclosure Activity

The following table provides information on the number of foreclosures on residential property located in selected cities located entirely within the District (El Cajon, Lemon Grove and Santee), almost entirely within the District (La Mesa), and in the County.

ANNUAL NUMBER OF RESIDENTIAL FORECLOSURES FOR SELECT CITIES AND THE COUNTY Grossmont Union High School District 2006-2017

City of City of City of City of County of Calendar Year El Cajon La Mesa Lemon Grove Santee San Diego 2006 93 31 14 43 1,622 2007 369 119 82 161 7,355 2008 932 251 225 291 17,721 2009 678 223 141 224 13,489 2010 688 223 134 250 11,920 2011 594 210 102 238 10,175 2012 352 133 58 130 5,984 2013 156 61 26 61 2,405 2014 91 27 18 46 1,672 2015 94 33 11 31 1,426 2016 50 17 16 16 1,013 2017 37 16 3 17 712

Source: CoreLogic.

Income

Total personal income in the County increased by approximately 91.2% between 2000 and 2016, representing an average annual compound growth rate of approximately 4.1 %. Per capita personal income in the County grew by approximately 62.9% during this time, representing an average annual compound growth of approximately 3.1 %. The following tables summarize personal income for the County and per capita personal income for the period 2000 to 2016.

A-7 PERSONAL INCOME 2000-2016(1) (in thousands)

County of Annual Year San Diego Percent Change 2000 $ 95,753,005 2001 100,173,186 4.6% 2002 104,400,001 4.2 2003 109,323,606 4.7 2004 116,727,654 6.8 2005 121,544,485 4.1 2006 128,079,224 5.4 2007 132,954,811 3.8 2008 138,673,021 4.3 2009 134,139,980 (3.3) 2010 138,346,589 3.1 2011 147,960,807 6.9 2012 155,954,440 5.4 2013 160,828,662 3.1 2014 167,931,419 4.4 2015 175,858,666 5.2 2016 183,032,418 4.1

Cl) Most recent annual data available. Source: U.S. Department of Commerce, Bureau of Economic Analysis.

PER CAPITA PERSONAL INCOME 2000-2016(1)

County of Year San Diego California United States 2000 $33,867 $33,391 $30,602 2001 34,908 34,091 31,540 2002 35,996 34,306 31,815 2003 37,508 35,381 32,692 2004 39,839 37,244 34,316 2005 41,365 39,046 35,904 2006 43,457 41,693 38,144 2007 44,680 43,182 39,821 2008 45,886 43,786 41,082 2009 43,819 41,588 39,376 2010 44,563 42,411 40,277 2011 47,095 44,852 42,453 2012 48,990 47,614 44,266 2013 49,907 48,125 44,438 2014 51,459 49,985 46,049 2015 53,298 53,741 48,112 2016 55,168 56,374 49,246

Cl) Most recent annual data available. Source: U.S. Department of Commerce, Bureau of Economic Analysis.

Retail Sales

Taxable sales in the cities of El Cajon and La Mesa and in the County from 2012 through 2016 are shown below. Increases in taxable sales between 2012 and 2016 were 14.2% in El Cajon, 10.7% in La Mesa, and 22.7% in the County.

A-8 1 TAXABLE SALES, 2012-2016< ) City of El Cajon (in thousands)

Taxable Sales ($000) 2012 2013 2014 2015 2016 Apparel $100,376 $103,359 $103,285 $105,375 $108,145 General Merchandise 145,498 147,203 151,010 141,113 130,275 Food Stores 67,884 69,759 71,066 71, 186 72,634 Eating and Drinking 133,283 136,138 141,752 149,843 157,780 Home Furnishings & Appliances 72,523 71,939 70,452 87,108 106,030 Building Materials and Farm Implements 142,949 146,946 159,520 153,771 157,229 Auto Dealers & Supplies 454,361 513,428 548,243 642,173 681,642 Service Stations 230,666 211,685 208,772 182,561 161,262 Other Retail Stores 112,061 114,069 111,744 111,488 114,731 Total Retail Stores $1,459,601 $1,514,525 $1,565,845 $1,644,618 $1,689,726 All Other Outlets 437,264 472,520 476,953 471,604 476,602 Total All Outlets $1,896,865 $1,987,045 $2,042,798 $2,116,222 $2,166,328

Cl) Most recent annual data available. Source: California Board of Equalization.

TAXABLE SALES, 2012-2016<1) City of La Mesa (in thousands)

Taxable Sales ($000) 2012 2013 2014 2015 2016 Apparel $ 46,478 $ 49,590 $ 51,244 $ 52,396 $ 53,901 General Merchandise 211,563 213,909 214,618 191,978 191,196 Food Stores 52,646 50,322 51,584 54,340 56,602 Eating and Drinking 132,702 133,465 139,211 147,857 154,881 Home Furnishings & Appliances 36,479 36,952 37,073 34,054 35,629 Building Materials and Farm Implements 24,462 27,010 27,665 31,109 35,939 Auto Dealers & Supplies 224,039 245,784 279,044 304,757 309,500 Service Stations 90,120 85,094 84,926 73,825 66,764 Other Retail Stores 95,351 95,532 95,411 102,872 99,148 Total Retail Stores $914,239 $937,659 $980,777 $993, 188 $1,033,561 All Other Outlets 68, 141 72,278 74,713 77,351 84,021 Total All Outlets $982,380 $1,009,937 $1,055,490 $1,070,538 $1,087,582

Cl) Most recent annual data available. Source: California Board of Equalization.

A-9 1 TAXABLE SALES, 2012-2016< ) County of San Diego (in thousands)

Taxable Sales ($000) 2012 2013 2014 2015 2016 Motor Vehicle and Parts Dealers $5,851,723 $6,355,973 $6,753,234 $7,294,831 $7,552,837 Furniture and Home Furnishings Stores 962,420 1,015,878 1,047,805 2,431,314 2,555,890 Electronics and Appliance Stores 1,261,183 1,297,063 1,272,567 Building Materials and Garden Equipment and Supplies 2,204,608 2,376,043 2,474,612 2,631,078 2,744,044 Food and Beverage Stores 2,087,821 2,179,811 2,291,807 2,306,866 2,326,584 Health and Personal Care Stores 876,663 915,651 919,455 Gasoline Stations 4,595,421 4,515,941 4,514,898 3,944,602 3,460,970 Clothing and Clothing Accessories Stores 3,208,810 3,425,325 3,482,100 3,562,794 3,573, 190 Sporting Goods, Hobby, Book and Music Stores 1,003,947 1,031,505 1,033,870 General Merchandise Stores 4,695,436 4,784,812 4,845,900 4,398,638 4,305,597 J\.1iscellaneous Store Retailers 1,473,767 1,539,376 1,594,890 4,463,781 4,682,869 Nonstore Retailers 265,508 556,994 641,091 Food Services and Drinking Places 5,665,929 5,954,220 6,385,266 6,955,661 7,374,383 Total Retail and Food Services $34, 153,236 $35,948,594 $37,257,495 $37,989,566 $38,576,363 All Other Outlets 13,793,799 14,348,737 15,454,144 16,196,022 16,831,504 Total All Outlets $47,947,035 $50,297,331 $52,711,639 $54,185,588 $55,507,867

Cl) Most recent annual data available. Source: California Board of Equalization.

A-10 PART II

TINANCIAL AND OPERATING INFORMATION

The information in this Part II of this appendix concerning the operations of the District, the District's finances, and State funding of education, is provided as supplementary information only, and it should not be inferred from the inclusion of this information in this Official Statement that the principal ofor interest on the Bonds is payable from the general fund of the District or from State revenues. The Bonds are approved by the voters of the District and are payable from the proceeds of an ad valorem tax that under the laws and State Constitutional requirements is required to be levied by the County on property within the District in an amount sufficient for the timely payment of principal of and interest on the Bonds. See "SECURITY AND SOURCES OF PAYMENT FOR THE BONDS."

General

The District, located in eastern San Diego County, was established in 1920 and encompasses an area of approximately 465 square miles, including all of the cities of El Cajon, Santee and Lemon Grove, most of the City of La Mesa, a small portion of the City of San Diego and the unincorporated communities of Alpine, Dulzura, Jamul, Lakeside and Spring Valley. The District's projected average daily attendance for fiscal year 2018-19 is 15,682 students, and the District's projected general fund expenditures for fiscal year 2018-19 is approximately $222.5 million.

The District is a high school district, providing education to students in grades 9-12 from eight feeder elementary school districts. The District currently operates nine comprehensive high schools, two charter high schools, one continuation high school, two alternative education sites, three special education facilities, a middle college high school program, a Career Technical Education Program ("CTE"), an adult education program and a day care facility.

Taxable property in the District has a fiscal year 2018-19 assessed value of approximately $49.6 billion. For fiscal year 2018-19, the District has projected the employment of 859. 7 full-time equivalent ("FIE") certificated employees (teaching staff), 663.4 FIE classified employees and 107.8 FIE management, supervisory and confidential personnel. The District operates under the jurisdiction of the San Diego County Superintendent of Schools.

The District is governed by a five-member Governing Board (the "Board"), each of whom is elected to a four-year term. Elections for positions to the Board are held every two years alternating between two and three available positions. Beginning November 2016, the Board changed the District's method of election of the Board from "at-large" voting to "by-trustee-area" voting, by which method members of the Board are elected by the voters of the trustee area in which they reside. In the election held on November 8, 2016, board member positions for Trustee Area 1 and Trustee Area 2 were up for election. Trustee Area 1 includes portions of Lemon Grove, La Presa and Spring Valley. Trustee Area 2 includes portions of La Mesa, Casa de Oro-Mount Helix, and Rancho San Diego. The remaining three seats were assigned Trustee Areas 3, 4 and 5. Trustee Area 3 includes portions of El Cajon, while Trustee Area 4 covers portions of Santee, Winter Gardens and Eucalyptus Hills. Trustee Area 5 includes Alpine, Jamul, Crest, and Harbison Canyon. Current members of the Board, together with their offices, the dates their terms expire, and their trustee areas, are listed below:

Board Member Office Tenn Expires Trustee Area Robert Shield President November 2018 Area 4 Chris Fite Vice President November 2020 Area I Elva Salinas Clerk November 2020 Area 2 Jim Kelly Member November 2018 Areas Dr. Gary Woods Member November 2018 Area3

The administrative staff of the District includes Dr. Tim Glover, Superintendent; Scott Patterson, Deputy Superintendent, Business Services; Julie Mottershaw, Assistant Superintendent, Human Resources; Theresa

A-11 Kemper, Assistant Superintendent, Educational Services; Ken Leighton, Executive Director, Fiscal Services; and Katy Wright, Executive Director, Facilities Management.

Superintendent Tim Glover joined the District on July I, 2016. Dr. Glover, who has nearly 30 years' experience as an educational leader, comes from the San Diego County Office of Education where he served as the Assistant Superintendent of Student Services and Programs Division. Prior to that, Dr. Glover's many positions in education include Senior Director of the East County SELPA, as well as teacher, principal, program manager and Director of Special Support Services in the Sweetwater Union High School District. He also served as principal at multiple school sites in the Chula Vista Elementary School District.

Scott Patterson has served as Deputy Superintendent, Business Services of the District since June 2006. Prior to joining the District, Mr. Patterson served as Chief Financial Officer for the San Diego Unified School District.

State Funding of Education; State Budget Process

General. As is true for most school districts in California, the District's operating income consists primarily of two components: a State portion funded from the State's general fund in accordance with the Local Control Funding Formula (see "-Allocation of State Funding to School Districts; Local Control Funding Formula" below) and a local portion derived from the District's share of the 1% local advalorem tax authorized by the State Constitution (see "- Local Sources of Education Funding" below). In addition, school districts may be eligible for other special categorical funding from State and federal government programs. The District expects to receive approximately 45.7% of its general fund revenues from State funds (not including the local portion derived from the District's share of the local advalorem tax), projected at approximately $100.5 million in fiscal year 2018-19. Such amount includes both the State funding provided under the LCFF (defined herein) as well as other State revenues (see "- District Revenues -Allocation of State Funding to School District; Local Control Funding Formula" and"­ Other District Revenues - Other State Revenues" below). As a result, decreases or deferrals in State revenues, or in State legislative appropriations made to fund education, may significantly affect the District's revenues and operations. In addition, the District estimates that approximately $23.6 million of LCFF revenues will be transferred to charter schools in lieu of property taxes in fiscal year 2018-19.

Under Proposition 98, a constitutional and statutory amendment adopted by the State's voters in 1988 and amended by Proposition 111 in 1990 (now found at Article XVI, Sections 8 and 8.5 of the State Constitution), a minimum level of funding is guaranteed to school districts, community college districts and other State agencies that provide direct elementary and secondary instructional programs. Recent years have seen frequent disruptions in State revenues from personal income taxes, sales and use taxes, and corporate taxes, making it increasingly difficult for the State to meet its Proposition 98 funding mandate, which normally commands about 45% of all State general fund revenues, while providing for other fixed State costs and priority programs and services. Because education funding constitutes such a large part of the State's general fund expenditures, it is generally at the center of annual budget negotiations and adjustments.

In connection with the State Budget Act for fiscal year 2013-14, the State and local educational agencies therein implemented a new funding formula for school finance system called the Local Control Funding Formula (the "Local Control Funding Formula" or "LCFF"). Funding from the LCFF replaced the revenue limit funding system and most categorical programs. See "- Allocation of State Funding to School Districts; Local Control Funding Formula" below for more information.

Constitutional PrCNisions GCNerning School Finance On November 8, 1988, voters approved Proposition 98, a combined initiative constitutional amendment and statute called the "Classroom Instructional Improvement and Accountability Act" (the "Accountability Act"). The Accountability Act changed State funding of public education below the university level, and the operation of the State's Appropriations Limit. The Accountability Act guarantees State funding for K-12 school districts and community college districts (collectively, "K-14 districts") at a level equal to the greater of (a) the same percentage of general fund revenues as the percentage appropriated to such districts in 1986-87, which percentage is equal to 40.9%, or (b) the amount actually appropriated to such districts from the general fund in the previous fiscal year, adjusted for growth in emolhnent and inflation.

A-12 On June 5, 1990, California voters approved Proposition 111 (Senate Constitutional Amendment!), wliicli further modified tlie Constitution to alter tlie spending limit and education funding provisions of Proposition 98. Most significantly, Proposition 111: (!) liberalized tlie annual adjustments to the State spending limit by measuring tlie "change in the cost of living" by tlie change in State per capita personal income rather than the Consumer Price Index, and specified that a portion of tlie State's spending limit would be adjusted to reflect changes in school attendance; (2) provided that 50% of tlie "excess" tax revenues, determined based on a two-year cycle, would be transferred to K-14 school districts with tlie balance returned to taxpayers (rather than tlie previous 100% but only up to a cap of 4% of the districts' minimum funding level), and tliat any such transfer to K-14 school districts would not be built into the school districts' base expenditures for calculating their entitlement for State aid in the following year and would not increase the State's appropriations limit; (3) excluded from tlie calculation of appropriations that are subject to the limit appropriations for certain "qualified capital outlay projects" and certain increases in gasoline taxes, sales and use taxes, and receipts from vehicle weight fees; ( 4) provided that the Appropriations Limit for each unit of government, including the State, would be recalculated beginning in the 1990-91 fiscal year, based on the actual limit for fiscal year 1986-87, adjusted forward to 1990-91 as if Senate Constitutional Amendment I had been in effect; and (5) adjusted tlie Proposition 98 formula tliat guarantees K-14 school districts a certain amount of general fund revenues, as described below.

Under the law, K-14 school districts were guaranteed tlie greater of (a) 40.9% of general fund revenues (the "first test") or (b) the amount appropriated to school districts in the prior year adjusted for changes in the cost of living (measured as in Article XIIIB by reference to per capita personal income) and emollment (tlie "second test") or a third test, which replaces the second test in any year when growth in per capita general fund revenues from the prior year was less than the annual growth in State per capita personal income. Under the third test, school districts receive the amount appropriated in the prior year adjusted for change in emollment and per capita general fund revenues, plus an additional small adjustment factor. If tlie tliird test is used in any year, the difference between tlie third test and the second test becomes a "credit" to be paid in future years when general fund revenue growth exceeds personal income growth.

Aggregate State Education Funding. The Proposition 98 guaranteed amount for education is based on prior-year funding, as adjusted tlirough various formulas and tests tliat take into account State proceeds of taxes, local property tax proceeds, school emollment, per-capita personal income, and other factors. The State's share of the guaranteed amount is based on State general fund tax proceeds and is not based on the general fund in total or on the State budget. The local share of tlie guaranteed amount is funded from local property taxes. The total guaranteed amount varies from year to year and throughout the stages of any given fiscal year's budget, from the Governor's initial budget proposal to actual expenditures to post-year-end revisions, as better information regarding the various factors becomes available. Over the long run, the guaranteed amount will increase as emollment and per capita personal income grow.

If, at year-end, the guaranteed amount is calculated to be higher tlian tlie amount actually appropriated in that year, the difference becomes an additional education funding obligation, referred to as "settle-up." If tlie amount appropriated is higher tlian the guaranteed amount in any year, tliat higher funding level permanently increases the base guaranteed amount in future years. The Proposition 98 guaranteed amount is reduced in years when general fund revenue growth lags personal income growth, and may be suspended for one year at a time by enactment of an urgency statute. In either case, in subsequent years when State general fund revenues grow faster than personal income (or sooner, as the Legislature may determine), the funding level must be restored to tlie guaranteed amount, the obligation to do so being referred to as "maintenance factor."

Although tlie State Constitution requires the State to approve a balanced State Budget Act each fiscal year, the State's response to fiscal difficulties in some years has had a significant impact on Proposition 98 minimum guarantee and the treatment of settle-up payments with respect to years in which the Proposition 98 minimum guarantee was suspended. The State has sought to avoid or delay paying settle-up amounts when funding has lagged the guaranteed amount. In response, teachers' unions, the State Superintendent and others sued the State or Governor in 1995, 2005, 2009 and 2011 to force them to fund schools in tlie full amount required. The settlement of tlie 1995 and 2005 lawsuits has so far resulted in over $4 billion in accrued State settle-up obligations. However, legislation enacted to pay down tlie obligations through additional education funding over time, including tlie Quality Education Investment Act of 2006, have also become part of annual budget negotiations, resulting in repeated adjustments and deferrals of tlie settle-up amounts.

A-13 The State has also sought to preserve general fund cash while avoiding increases in the base guaranteed amount through various mechanisms: by treating any excess appropriations as advances against subsequent years' Proposition 98 minimum funding levels rather than current year increases; by temporarily deferring apportionments of Proposition 98 funds from one fiscal year to the next; by permanently deferring apportiomnents of Proposition 98 funds from one fiscal year to the next; by suspending Proposition 98, as the State did in fiscal year 2004-05, fiscal year 2010-11, fiscal year 2011-12 and fiscal year 2012-13; and by proposing to amend the State Constitution's definition of the guaranteed amount and settle-up requirement under certain circumstances.

The District cannot predict how State income or State education funding will vary over the term to maturity of the Bonds, and the District takes no responsibility for informing owners of the Bonds as to actions the State Legislature or Governor may take affecting the current year's budget after its adoption. Information about the State budget and State spending for education is regularly available at various State-maintained websites. Text of proposed and adopted budgets may be found at the website of the Department of Finance, www.dof.ca.gov, under the heading "California Budget." An impartial analysis of the State budget is posted by the Office of the Legislative Analyst at www.lao.ca.gov. In addition, various State of California official statements, many of which contain a summary of the current and past State budgets and the impact of those budgets on school districts in the State, may be found at the website of the State Treasurer, www.treasurer.ca.gov. The information referred to is prepared by the respective State agency maintaining each website and not by the District, and the District can take no responsibility for the continued accuracy of these internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references.

State Budget Process During recessionary times there have been frequent reductions in State personal income taxes, sales and use taxes, and corporate taxes, making it increasingly difficult for the State to meet its Proposition 98 funding mandate, which normally commands about 45% of all State general fund revenues, while providing for other fixed State costs and priority programs and services. Because education funding constitutes such a large part of the State's general fund expenditures, it is generally at the center of annual budget negotiations and adjustments.

According to the State Constitution, the Governor must propose a budget to the State Legislature no later than January 10 of each year, and a final budget must be adopted no later than June 15. Historically, the budget required a two-thirds vote of each house of the State Legislature for passage. However, on November 2, 2010, the State's voters approved Proposition 25, which amended the State Constitution to lower the vote requirement necessary for each house of the State Legislature to pass a budget bill and send it to the Governor. Specifically, the vote requirement was lowered from two-thirds to a simple majority (50% plus one) of each house of the State Legislature. The lower vote requirement would also apply to trailer bills that appropriate funds and are identified by the State Legislature as "related to the budget in the budget bill." The budget becomes law upon the signature of the Governor, who may veto specific items of expenditure. Under Proposition 25, a two-thirds vote of the State Legislature is still required to override any veto by the Governor. School district budgets must generally be adopted by July 1, and revised by the school board within 45 days after the Governor signs the budget act to reflect any changes in budgeted revenues and expenditures made necessary by the adopted State budget. The Governor signed the fiscal year 2018-19 State budget on June 27, 2018.

When the State budget is not adopted on time, basic appropriations and the categorical funding portion of each school district's State funding are affected differently. Under the rule of White v. Davis (also referred to as Jarvis v. Connell), a State Court of Appeal decision reached in 2002, there is no constitutional mandate for appropriations to school districts without an adopted budget or emergency appropriation, and funds for State programs cannot be disbursed by the State Controller until that time, unless the expenditure is (i) authorized by a continuing appropriation found in statute, (ii) mandated by the State Constitution (such as appropriations for salaries of elected State officers), or (iii) mandated by federal law (such as payments to State workers at no more than minimum wage). The State Controller has consistently stated that basic State funding for schools is continuously appropriated by statute, but that special and categorical funds may not be appropriated without an adopted budget. Should the State Legislature fail to pass a budget or emergency appropriation before the start of any fiscal year, the District might experience delays in receiving certain expected revenues. The District is authorized to borrow temporary funds to cover its annual cash flow deficits, and as a result of the TVhite v. Davis decision, the District might find it necessary to increase the size or frequency of its cash flow borrowings, or to borrow earlier in the fiscal year. The District does not expect the White v. Davis decision to have any long-term effect on its operating budgets.

A-14 Rainy Day Fund; SB 858 In connection with the 2014-15 State Budget, the Governor proposed certain constitutional amendments ("Proposition 2") to the rainy day fund (the "Rainy Day Fund") for the November 2014 Statewide election. Senate Bill 858 (2014) ("SB 858") amends the Education Code to, among other things, limit the amount of reserves that may be maintained by a school district subject to certain State budget matters. Upon the approval of Proposition 2, SB 858 became operational. See "CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS -Proposition 2."

AB 1469 As part of the 2014-15 State Budget, the Governor signed Assembly Bill 1469 ("AB 1469") which implements a new funding strategy for the California State Teachers' Retirement System ("CalSTRS"), increasing the employer contribution rate in fiscal year 2014-15 from 8.25% to 8.88% of covered payroll. See "­ District Expenditures- CalSTRS" below for more information about CalSTRS and AB 1469.

2018-19 State Budget The Governor signed the fiscal year 2018-19 State Budget (the "2018-19 State Budget") on June 27, 2018. The 2018-19 State Budget sets forth a balanced budget for fiscal year 2018-19 that projects approximately $133.33 billion in revenues, and $83.82 billion in non-Proposition 98 expenditures and $54.87 billion in Proposition 98 expenditures. The 2018-19 State Budget includes a $1.96 billion reserve in the Special Fund for Economic Uncertainties. The 2018-19 State Budget uses dedicated proceeds from Proposition 2 to pay down approximately $1.75 billion in past budgetary borrowing and State employee pension liabilities. The 2018-19 State Budget includes total funding of $97.2 billion ($56.1 billion General Fund and $41.1 billion other funds) for all K-12 education programs. The 2018-19 State Budget provides $3.7 billion in new funding for the LCFF, which fully implements the school district and charter school formula two years earlier than originally scheduled, including both a 2.71 % cost of living adjustment and an additional $570 million above the cost of living adjustment as an ongoing increase to the formula. The 2018-19 State Budget also provides $300 million one-time Proposition 98 General Fund resources for the Low-Performing Students Block Grant, which will provide resources in addition to LCFF funds to local educational agencies with students who perform at the lowest levels on the State's academic assessments and do not generate supplemental LCFF funds or State or federal special education resources.

Certain budgeted adjustments for K-12 education set forth in the 2018-19 State Budget include the following:

• Statewide System of Support. The 2018-19 State Budget includes $57.8 million in Proposition 98 General Fund resources for county offices of education to provide technical assistance to school districts, of which $4 million will go towards geographical regional leads to build systemwide capacity to support school district improvement.

• Multi-Tiered Systems of Support (MISS). The 2018-19 State Budget includes $15 million one-time Proposition 98 General Fund resources to expand the State's MISS framework to foster positive school climate in both academic and behavioral areas.

• Community Engagement Iml!al!ve The 2018-19 State Budget includes $13.3 million one-time Proposition 98 General Fund resources for the California Collaborative for Educational Excellence and a co-lead county office of education to help school districts build capacity for community engagement in the LCAP process.

• California Collaborative for Educational Excellence. The 2018-19 State Budget includes $11.5 million Proposition 98 General Fund resources to support the California Collaborative for Educational Excellence in its role within the statewide system of support.

• Special Education Local Plan Area (SELPA) Technical Assistance. The 2018-19 State Budget includes $10 million Proposition 98 General Fund resources for SELPAs to assist county offices of education in providing technical assistance to school districts identified for differentiated assistance (specific to students with exceptional needs) within the statewide system of support.

• Dashboard Improvement. The 2018-19 State Budget includes $300,000 one-time Proposition 98 General Fund resources to improve the user interface of the California School Dashboard.

A-15 • LCFF Budget Summary for Parents. The 2018-19 State Budget includes $200,000 one-time Proposition 98 General Fund resources to develop the electronic template for the LCFF Budget Summary for Parents, which will help stakeholders better understand funding decisions made within theLCAP.

• LCAP Redesign. The 2018-19 State Budget includes $200,000 one-time Proposition 98 General Fund resources to support intended future legislation to streamline the LCAP.

• Strong Workforce Program. The 2018-19 State Budget includes $164 million ongoing Proposition 98 General Fund resources to establish a K-12 specific component within the Strong Workforce Program designed to encourage local educational agencies to offer high-quality career technical education programs that are aligned with needed industry skills and regional workforce development efforts occurring through the existing Strong Workforce Program.

• Career Technical Education Incentive Grant Program. The 2018-19 State Budget includes $150 million ongoing Proposition 98 General Fund resources to make permanent the Career Technical Education Incentive Grant Program.

• Inclusive Early Education Expansion Program. The 2018-19 State Budget creates the Inclusive Early Education Expansion Program, providing $167.2 million one-time Proposition 98 General Fund resources through a competitive grant program to increase the availability of inclusive early education and care for children aged zero to five years old, especially in low-income areas and in areas with relatively low access to care.

The complete 2018-19 State Budget is available from the California Department of Finance website at www.dof.ca.gov. The District can take no responsibility for the continued accuracy of this internet address or for the accuracy, completeness or timeliness of information posted therein, and such information is not incorporated herein by such reference.

Future Budgets and Budgetary Actions The District cannot predict what future actions will be taken by the State Legislature and the Governor to address changing State revenues and expenditures or the impact such actions will have on State revenues available in the current or future years for education. The State budget will be affected by national and State economic conditions and other factors beyond the District's ability to predict or control. Certain actions could result in a significant shortfall of revenue and cash, and could impair the State's ability to fund schools during fiscal year 2018-19 and in future fiscal years. Certain factors, like an economic recession, could result in State budget shortfalls in any fiscal year and could have a material adverse financial impact on the District. As the Bonds are payable from ad valorem property taxes, the State budget is not expected to have an impact on the payment of the Bonds.

Prohibitions on Diverting Local Revenues for State Purposes Beginning in fiscal year 1992-93, the State satisfied a portion of its Proposition 98 obligations by shifting part of the property tax revenues otherwise belonging to cities, counties, special districts, and redevelopment agencies, to school and community college districts through a local Educational Revenue Augmentation Fund ("ERAF") in each county. Local agencies, objecting to invasions of their local revenues by the State, sponsored a statewide ballot initiative intended to eliminate the practice. In response, the State Legislature proposed an amendment to the State Constitution, which the State's voters approved as "Proposition IA" at the November 2004 election. That measure was generally superseded by the passage of a new initiative constitutional amendment at the November 2010 election, known as "Proposition 22."

The effect of Proposition 22 is to prohibit the State, even during a period of severe fiscal hardship, from delaying the distribution of tax revenues for transportation, redevelopment, or local government projects and services. It prevents the State from redirecting redevelopment agency property tax increment to any other local government, including school districts, or from temporarily shifting property taxes from cities, counties and special districts to schools, as in the ERAF program. This is intended to, among other things, stabilize local govermnent revenue sources by restricting the State's control over local property taxes. One effect of this amendment will be to deprive the State of fuel tax revenues to pay debt service on most State bonds for transportation projects, reducing the amount of State general fund resources available for other purposes, including education.

A-16 Prior to the passage of Proposition 22, the State invoked Proposition IA to divert $1.935 billion in local property tax revenues in 2009-10 from cities, counties, and special districts to the State to offset State general fund spending for education and other programs, and included another diversion in the adopted 2009-10 State budget of $1.7 billion in local property tax revenues from local redevelopment agencies, which local redevelopment agencies have now been dissolved (see "- Dissolution of Redevelopment Agencies" below). Redevelopment agencies had sued the State over this latter diversion. However, the lawsuit was decided against the California Redevelopment Association on May 1, 2010. Because Proposition 22 reduces the State's authority to use or shift certain revenue sources, fees and taxes for State general fund purposes, the State will have to take other actions to balance its budget in some years-such as reducing State spending or increasing State taxes, and school and community college districts that receive Proposition 98 or other funding from the State will be more directly dependent upon the State's general fund.

Dissolution of Reda,elopment Agencies. The adopted State budget for fiscal year 2011-12, as signed by the Governor on June 30, 2011, included as trailer bills Assembly Bill No. 26 (First Extraordinary Session) ("ABIX 26") and Assembly Bill No. 27 (First Extraordinary Session) ("ABIX 27"), which the Governor signed on June 29, 2011. ABIX 26 suspended most redevelopment agency activities and prohibited redevelopment agencies from incurring indebtedness, making loans or grants, or entering into contracts after June 29, 2011. ABIX 26 dissolved all redevelopment agencies in existence and designated "successor agencies" and "oversight boards" to satisfy "enforceable obligations" of the former redevelopment agencies and administer dissolution and wind down of the former redevelopment agencies. Certain provisions of AB IX 26 are described further below.

In July of 2011, various parties filed an action before the Supreme Court of the State of California (the "Court") challenging the validity of ABIX 26 and ABIX 27 on various grounds (California Redevelopment Association v. Matosantos). On December 29, 2011, the Court rendered its decision in Matosantos upholding virtually all of ABIX 26 and invalidating ABIX 27. In its decision, the Court also modified various deadlines for the implementation of AB IX 26. The deadlines for implementation of AB IX 26 described below take into account the modifications made by the Court inMatosantos.

On February I, 2012, and pursuant to Matosantos, ABIX 26 dissolved all redevelopment agencies in existence and designated "successor agencies" and "oversight boards" to satisfy "enforceable obligations" of the former redevelopment agencies and administer dissolution and wind down of the former redevelopment agencies. With limited exceptions, all assets, properties, contracts, leases, records, buildings and equipment, including cash and cash equivalents of a former redevelopment agency, will be transferred to the control of its successor agency and, unless otherwise required pursuant to the terms of an enforceable obligation, distributed to various related taxing agencies pursuant to AB IX 26.

ABlX 26 requires redevelopment agencies to continue to make scheduled payments on and perform obligations required under its "enforceable obligations." For this purpose, ABIX 26 defines "enforceable obligations" to include "bonds, including the required debt service, reserve set-asides, and any other payments required under the indenture or similar documents governing the issuance of outstanding bonds of the former redevelopment agency" and "any legally binding and enforceable agreement or contract that is not otherwise void as violating the debt limit or public policy." ABIX 26 specifies that only payments included on an "enforceable obligation payment schedule" adopted by a redevelopment agency shall be made by a redevelopment agency until its dissolution. However, until a successor agency adopts a "recognized obligation payment schedule" the only payments permitted to be made are payments on enforceable obligations included on an enforceable obligation payment schedule. A successor agency may amend the enforceable obligation payment schedule at any public meeting, subject to the approval of its oversight board.

Under ABIX 26, commencing February I, 2012, property taxes that would have been allocated to each redevelopment agency if the agencies had not been dissolved will instead be deposited in a "redevelopment property tax trust fund" created for each former redevelopment agency by the related county auditor-controller and held and administered by the related county auditor-controller as provided in ABIX 26. ABIX 26 generally requires each county auditor-controller, on May 16, 2012 and June I, 2012 and each January 16 and June I (now each January 2 and June I pursuant to AB 1484, as described below) thereafter, to apply amounts in a related redevelopment property tax trust fund, after deduction of the county auditor-controller's administrative costs, in the following order of priority:

A-17 To pay pass-through payments to affected taxing entities in the amounts that would have been owed had the former redevelopment agency not been dissolved; provided, however, that if a successor agency determines that insufficient funds will be available to make payments on the recognized obligation payment schedule and the county auditor-controller and State Controller verify such determination, pass-through payments that had previously been subordinated to debt service may be reduced;

To the former redevelopment agency's successor agency for payments listed on the successor agency's recognized obligation payment schedule for the ensuing six-month period;

To the former redevelopment agency's successor agency for payment of administrative costs; and

Any remaining balance to school entities and local taxing agencies.

The District received $1, 147,843 in pass-through payments in fiscal year 2017-18 and projects it will receive $1,160,450 in pass-through payments in fiscal year 2018-19.

It is possible that there will be additional legislation proposed and/or enacted to "clean up" various inconsistencies contained in ABlX 26 and there may be additional legislation proposed and/or enacted in the future affecting the current scheme of dissolution and winding up of redevelopment agencies currently contemplated by ABlX 26. For example, AB 1484 was signed by the Governor on June 27, 2012, to clarify and amend certain aspects of ABlX 26. AB 1484, among other things, attempts to clarify the role and requirements of successor agencies, provides successor agencies with more control over agency bond proceeds and properties previously owned by redevelopment agencies and adds other new and modified requirements and deadlines. AB 1484 also provides for a "tax claw back" provision, wherein the State is authorized to withhold sales and use tax revenue allocations to local successor agencies to offset payment of property taxes owed and not paid by such local successor agencies to other local taxing agencies. This "tax claw back" provision has been challenged in court by certain cities and successor agencies. The District cannot predict the outcome of such litigation and what effect, if any, it will have on the District. Additionally, no assurances can be given as to the effect of any such future proposed and/or enacted legislation on the District.

Allocation of State Funding to School Districts; Local Control Funding Formula

Prior to the implementation of the Local Control Funding Formula in fiscal year 2013-14, under Section 42238 et seq. of the State Education Code, each school district was determined to have a target funding level: a "base revenue limit" per student multiplied by the district's student emollment measured in units of average daily attendance. The base revenue limit was calculated from the district's prior-year funding level, as adjusted for a number of factors, such as inflation, special or increased instructional needs and costs, employee retirement costs, especially low emollinent, increased pupil transportation costs, etc. Generally, the amount of State funding allocated to each school district was the amount needed to reach that district's base revenue limit after taking into account certain other revenues, in particular, locally generated property taxes. This is referred to as State "equalization aid." To the extent local tax revenues increased due to growth in local property assessed valuation, the additional revenue was offset by a decline in the State's contribution; ultimately, a school district whose local property tax revenues exceeded its base revenue limit was entitled to receive no State equalization aid, and received only its special categorical aid, which is deemed to include the "basic aid" of $120 per student per year guaranteed by Article IX, Section 6 of the State Constitution. Such districts were known as "basic aid districts," which are now referred to as "community funded districts." School districts that received some equalization aid were commonly referred to as "revenue limit districts," which are now referred to as "LCFF districts." The District is an LCFF district.

Beginning in fiscal year 2013-14, the LCFF replaced the revenue limit funding system and most categorical programs, and distributes combined resources to school districts through a base revenue funding limit grant ("Base Grant") per unit of average daily attendance ("AD.A") with additional supplemental funding allocated to local educational agencies based on their proportion of English language learners, students from low-income families and foster youth. The LCFF has an eight year implementation program to incrementally close the gap between actual funding and the target level of funding, as described below. The LCFF includes the following components:

A-18 A Base Grant for each local education agency, equivalent to $7,643 per unit of AD.A in fiscal year 2013-14. Such Base Grant per unit of AD.A, adjusted by grade span variation and to be adjusted annually for cost-of-living, is as follows: $6,845 for grades K-3, $6,947 for grades 4-6, $7,154 for grades 7-8 and $8,289 for grades 9-12. This amount includes an adjustment of 10.4% to the Base Grant to support lowering class sizes in grades K-3, and an adjustment of 2.6% to reflect the cost of operating career technical education programs in grades 9-12.

A 20% supplemental grant for the unduplicated number of English language learners, students from low-income families and foster youth to reflect increased costs associated with educating those students.

An additional concentration grant of up to 50% of a local educational agency's Base Grant, based on the number of English language learners, students from low-income families and foster youth served by the local educational agency that comprise more than 55% of emollment.

An Economic Recovery Target (the "ERT") that is intended to ensure that alinost every local educational agency receives at least their pre-recession funding level (i.e., the fiscal year 2007-08 revenue limit per unit of AD.A.), adjusted for inflation, at full implementation of the LCFF. Upon full implementation, local educational agencies would receive the greater of the Base Grant or the ERT.

Of the projected $25 billion in new funding to be invested through the LCFF over the next eight years, the vast majority of new funding will be provided for Base Grants. Specifically, of every dollar invested through the LCFF, 84 cents will go to Base Grants, 10 cents will go to supplemental grants and 6 cents will go to concentration grants.

Under the new formula, for community funded districts, local property tax revenues would be used to offset up to the entire allocation under the new formula. However, community funded districts would continue to receive the same level of State aid as allocated in fiscal year 2012-13.

Local Control Accountability Plan A feature of the LCFF is a system of support and intervention for local educational agencies. School districts, county offices of education and charter schools are required to develop, implement and annually update a three-year local control and accountability plan ("LCAP"). Each LCAP must be developed with input from teachers, parents and the community, and should describe local goals as they pertain to eight areas identified as state priorities, including student achievement, parent engagement and school climate, as well as detail a course of action to attain those goals. Moreover, the LCAPs must be designed to align with the district's budget to ensure adequate funding is allocated for the planned actions.

Each school district must submit its LCAP annually on or before July 1 for approval by its county superintendent. The county superintendent then has until August 15 to seek clarification regarding the contents of the LCAP, and the school district must respond in writing. The county superintendent can submit recommendations for amending the LCAP, and such recommendations must be considered, but are not mandatory. A school district's LCAP must be approved by its county superintendent by October 8 of each year if such superintendent finds (i) the LCAP adheres to the State template, and (ii) the district's budgeted expenditures are sufficient to implement the strategies outlined in the LCAP.

Performance evaluations are to be conducted to assess progress toward goals and guide future actions. County superintendents are expected to review and provide support to the school districts under their jurisdiction, while the State Superintendent of Public Instruction performs a corresponding role for county offices of education. The California Collaborative for Education Excellence (the "Collaborative"), a newly established body of educational specialists, was created to advise and assist local educational agencies in achieving the goals identified in their LCAPs. For local educational agencies that continue to struggle in meeting their goals, and when the Collaborative indicates that additional intervention is needed, the State Superintendent of Public Instruction would have authority to make changes to a local educational agency's LCAP.

A-19 Attendance and Enrollment The District's recent AD.A history per the District's Second Period Reports (P2) and total emollment as reported to the CDE is set forth in the table below:

GROSSMONT UNION HIGH SCHOOL DISTRICT Average Daily Attendance and Total Enrollment<') Fiscal Years 2008-09 to 2018-19

Fiscal Year Average Daily Attendance Total EmollmentC2l 2008-09 19,037 20,268 2009-10 18,855 20,538 2010-11 18,368 19,530 2011-12 17,659 18,792 2012-13 17,022 18,325 2013-14 16,827 17,908 2014-15 16,435 17,565 2015-16 16,010 17,220 2016-17 15,843 17,034 2017-18 15,6010) 16,832(3) 2018-19 15,692(4) 16,848(4)

Cl) Excludes Helix Charter High School and, beginning in the 2007-08 school year, Steele Canyon Charter High School, which voted to become a charter school in 2006. Also excludes adult education. C2> Declining emollrnent has been anticipated due to fewer students in feeder elementary schools in the District. C3) Estimated. C4) Projected. Source: The District.

Attendance and LCF F. The following table sets forth the District's estimated and projected AD.A, emolhnent (including percentage of students who are English language learners, from low-income families and/or foster youth (collectively, "EL/LI Students")), and targeted Base Grant per unit of AD.A for fiscal years 2015-16 through 2018-19. The AD.A and emolhnent numbers reflected in the following table include special education but exclude adult education and charter school attendance.

A-20 GROSSMONT UNION IDGH SCHOOL DISTRICT (San Diego County, California) Average Daily Attendance, Enrollment and Targeted Base Grant Fiscal Years 2015-16 through 2018-19

AD.A/Base Grant Emollment(7l Unduplicated Percent of Fiscal Total Total EL/LI Year 9-12 ADA Emollment Students 2015-16 AD.AC2l: 16,010 16,010 17,220 58.16% Targeted Base Grant(Jl: $8,578

2016-17 AD.AC2l: 15,842 15,843 17,034 58.44% Targeted Base GrantC3)(4l: $8,578

2017-18(1) AD.AC2l: 15,611 15,601 16,832 59.04% Targeted Base GrantC3)(5l: $8,712

2018-19(1) AD.AC2l: 15,686 15,687 16,848 57.02% Targeted Base Grant(Jl('l: $9,034

Cl) Figures are projections. C2> A.D.A. for the second period of attendance, typically in mid-April of each school year. C3) Such amollllts represent the targeted amount of Base Grant per unit of A.D.A., and do not include any grade span adjustment or supplemental and concentration grants under the LCFF. Such amollllts were not fully fimded in fiscal years 2015-16, 2016-17 and2017-18. C4) Targeted fiscal year 2016-17 Base Grant amollllts reflect a 0.00% cost of living adjustment from targeted fiscal year 2015-16 Base Grant amounts. C5) Targeted fiscal year 2017-18 Base Grant amollllts reflect a 1.56% cost of living adjustment from targeted fiscal year 2016-17 Base Grant amounts. (6) Targeted fiscal year 2018-19 Base Grant amounts reflect a 3.70% cost of living adjustment from targeted fiscal year 2017-18 Base Grant amounts. G) Reflects emollment as of October report submitted to the CBEDS in each school year. Source: The District.

The District received approximately $160.4 million in aggregate revenues allocated under the LCFF in fiscal year 2017-18, and projects to receive approximately $166.3 million in aggregate revenues under the LCFF in fiscal year 2018-19 (or approximately 75.6% of its general fund revenues in fiscal year 2018-19). Such amount includes an estimated $16.6 million in supplemental grants and $1.5 million in concentration grants in fiscal year 2018-19.

Effect of Changes in Enrollment Changes in local property tax income and student emollment (or AD.A.) affect community funded districts and LCFF districts, differently. In a LCFF district, increasing emollment increases the amount allocated under LCFF and thus generally increases a district's entitlement to State aid, while increases in property taxes do nothing to increase district revenues, but only offset the State aid funding requirement. Operating costs typically increase disproportionately slower than emollment growth until the point where additional teachers and classroom facilities are needed. Declining emollment has the reverse effect on LCFF districts, generally resulting in a loss of State aid, while operating costs typically decrease slowly until the district decides to lay off teachers, close schools, or initiate other cost-saving measures.

In community funded districts, the opposite is generally true: increasing emollment does increase the amount allocated under LCFF, but since all LCFF income (and more) is already generated by local property taxes,

A-21 there is typically no increase in State income. New students impose increased operating costs, but typically at a slower pace than emollment growth, and the effect on the financial condition of a community funded district would depend on whether property tax growth keeps pace with emolhnent growth. Declining emolhnent typically does not reduce property tax income, and has a negligible impact on State aid, but eventually reduces operating costs, and thus can be financially beneficial to a community funded district.

For LCFF districts, any loss of local property taxes is made up by an increase in State aid. For community funded districts, the loss of tax revenues is not reimbursed by the State.

Emollment can fluctuate due to factors such as population growth, competition from private, parochial, and public charter schools, inter-district transfers in and out, and other causes. Losses in emollment will cause an LCFF district to lose operating revenues, without necessarily permitting the district to make contemporaneous adjustments in fixed operating costs.

The District cannot make any predictions regarding how the current economic environment or changes thereto will affect the State's ability to meet the revenue and spending assumptions in the State's adopted budget, and the effect of these changes on school finance. The District's adopted budget for fiscal year 2018-19 (the "2018- 19 Adopted Budget") and projected AD.A are used for planning purposes only, and do not represent a prediction as to the actual financial performance, attendance, or the District's actual funding level for fiscal year 2018-19 or beyond. Certain adjustments will have to be made throughout the year based on actual State funding and actual attendance.

Local Sources of Education Funding

The principal component of local revenues is the school district's property tax revenues, i.e., the District's share of the local 1% property tax, received pursuant to Sections 75 et seq. and Sections 95 et seq. of the California Revenue and Taxation Code. Section 42238(h) of the Education Code itemizes the local revenues that are counted towards the amount allocated under the LCFF (and formerly, the base revenue limit) before calculating how much the State must provide in State aid. The more local property taxes a district receives, the less State aid it is entitled to. Under the LCFF, local property tax revenues are used to offset up to the entire State aid collection under the new formula for revenue limit districts, though community funded districts continue to receive the same level of State aid as allotted in fiscal year 2012-13. See "- Allocation of State Funding to School Districts; Local Control Funding Formula" above for more information about the LCFF.

For the District, local property tax revenues are projected to be approximately $84.5 million, or 38.4% of total general fund revenues in fiscal year 2018-19, accounting for approximately 50. 8% of the District's aggregate revenues allocated under the LCFF. For a discussion of legal limitations on the ability of the District to raise revenues through local property taxes, see "CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS."

Other District Revenues

Federal Ra,enues. The federal govermnent provides funding for several District programs, including special education programs. Federal revenues, most of which are restricted, comprise approximately 5.5% (or approximately $12.1 million) of the District's general fund projected revenues for fiscal year 2018-19.

Other State Ra,enues. In addition to State apportiomnents for Proposition 98 funding through the Local Control Funding Formula, the District receives other State revenues which comprise approximately 8.5% (or approximately $18.6 million) of the District's general fund projected revenues for fiscal year 2018-19. A significant portion of such other State revenues are amounts the District expects to receive from State lottery funds, which may not be used for non-instructional purposes, such as the acquisition of real property, the construction of facilities, or the financing of research. School districts receive lottery funds proportional to their total AD.A The District's State lottery revenue is projected at $3.1 million for fiscal year 2018-19.

Other Local Revenues In addition to ad valorem property taxes, the District receives additional local revenues from items such as leases and rentals, interest earnings, redevelopment funds and other local sources.

A-22 Other local revenues comprise approximately 10.4% (or approximately $22.9 million) of the District's general fund projected revenues for fiscal year 2018-19.

Charter Schools

Charter schools operate as autonomous public schools, under charter from a school district, county office of education, or the State Board of Education, with minimal supervision by the local school district. Charter schools receive revenues from the State and from the District for each student emolled, and thus effectively reduce revenues available for students emolled in District schools. The District is required to accommodate charter school students originating in the District in facilities comparable to those provided to regular District students.

Two charter high schools have been approved by and are currently operating in the District, Helix Charter High School (serving grades 9-12) and Steele Canyon Charter High School (serving grades 9-12). A third charter school, Liberty Charter High School, closed following the 2011-12 school year Emollment figures for the charter schools are presented in the table below.

GROSSMONT UNION HIGH SCHOOL DISTRICT Charter School Annual Enrollment 2008-09 to 2018-19

School Helix Charter Steele Canyon Charter Year High School High School 2008-09 2,422 2,133 2009-10 2,395 2,193 2010-11 2,413 2,174 2011-12 2,469 2,186 2012-13 2,440 2,200 2013-14 2,434 2,186 2014-15 2,445 2,195 2015-16 2,445 2,192 2016-17 2,511 2,163 2017-18 2,465 2,195 2018-]9(!) 2,465 2,195

Cl) Projected. Source: Data Reporting Office, California Department of Education, unless otherwise noted.

In 2016, the Board denied a charter petition submitted by the Grossman! Secondary School to establish a charter school. On May 11, 2017, the Grossman! Secondary School appealed to the California State Board of Education and the petition was approved.

Additionally, the District discovered that at least eight charter schools approved by other school districts are operating within the District's boundaries without notice to or permission from the District. The District cannot determine the number of students that are attending these charter schools but estimates the number at approximately 1,000 students. The District is seeking removal of these schools from within District boundaries based on a ruling by the California Court of Appeal, Third Appellate District, in October 2016 that a charter school authorized by a school district must be located and operated entirely within the geographic boundaries of the authorizing school district, unless one of the specific exceptions of the Education Code applies. On January 18, 2017, the California Supreme Court denied a petition to review the appellate court decision. On June 27, 2017, the Superior Court ruled in favor of the District, compelling Julian Union Elementary School District to revoke the charters of Diego Valley Public Charter and Julian Charter School-Alpine Academy by June 30, 2017. On May 11, 2017, the California State Board of Education granted waivers for both charter schools until June 30, 2018, to become compliant with the law.

District Expenditures

The largest part of each school district's general fund budget is used to pay salaries and benefits of certificated ( credentialed teaching) and classified (non-instructional) employees. Changes in salary and benefit

A-23 expenditures from year to year are generally based on changes in staffing levels, negotiated salary increases, and the overall cost of employee benefits.

The District has projected expenditures of $189.0 million in salaries and benefits, or approximately 84.9% of its general fund expenditures, in fiscal year 2018-19. This amount represents an increase of 5.6% from the $179.1 million the District expended in 2017-18.

Labor Relations As of June 30, 2018, approximately 1630.9 employees were represented by labor organizations, as shown in the table below. For fiscal year 2018-19, the District has budgeted the employment of 859.7 FIE certificated employees (teaching staff) and 663.4 FIE classified employees (non-instructional support staff). The District has also budgeted 107.8 FIE management, supervisory and confidential employees who are not represented by labor organizations.

GROSSMONT UNION HIGH SCHOOL DISTRICT Labor Organizations

Labor Organization Represented Employees (FIE) Contract Expiration(!) Grossman! Education Association (GEA) 859.7 6/30/2019 California School Employees Association Chapter No. 443 (CSEA 443) 597.0 6/30/2019 Service Employees International Union, Local 221 (SEIU 221) 66.4 6/30/2019

Cl) Labor negotiations are closed for fiscal year 2018-19 with respect to salaries but negotiations may occur over the coming months with respect to health and welfare providers for the 2019 plan year. Source: The District.

In 2017, the American Federation of Teachers ("AFT") filed a petition with the Public Employment Relations Board to represent a portion of the District's adult education teachers. The District's adult education teachers are not currently represented by a labor organization. On March 23, 2018, the Public Employment Relations Board issued its Administrative Determination dismissing AFT's representation petition because AFT sought a legally inappropriate bargaining unit.

CalSTRS. Contributions to the California State Teachers' Retirement System ("CalSTRS") are fixed in statute. In fiscal year 2013-14, covered employees contributed 8% of salary to CalSTRS, while school districts contributed 8.25%. In addition to the teacher and school contributions, the State contributed 4.517% of teacher payroll to CalSTRS (calculated on payroll data from two fiscal years ago). Unlike typical defined benefit programs, however, neither the CalSTRS employer nor the State contribution rate varies annually to make up funding shortfalls or assess credits for actuarial surpluses. The State does pay a surcharge when the member and school district contributions are not sufficient to fully fund the basic defined benefit pension (generally consisting of 2% of salary for each year of service at age 60 referred to herein as "pre-enhancement benefits") within a 30-year period. However, this surcharge does not apply to systemwide unfunded liability resulting from recent benefit enhancements.

As of June 30, 2017, an actuarial valuation (the "2017 CalSTRS Actuarial Valuation") for the entire CalSTRS defined benefit program showed an estimated unfunded actuarial liability of $107.3 billion, an increase of approximately $10.6 billion from the June 30, 2016 valuation. The funded ratios of the actuarial value of valuation assets over the actuarial accrued liabilities as of June 30, 2017, June 30, 2016 and June 30, 2015, based on the actuarial assumptions, were approximately 63.9%, 63.7% and 68.5%, respectively. Future estimates of the actuarial unfunded liability may change due to market performance, legislative actions and other experience that may differ from the actuarial assumptions used for the CalSTRS valuation. The following are certain of the actuarial assumptions set forth in the 2017 CalSTRS Actuarial Valuation: measurement of accruing costs by the "Entry Age Normal Actuarial Cost Method," an assumed 7.00% investment rate of return for measurements subsequent to June 30, 2016, 3.00% interest on member accounts, 3.50% projected wage growth, and 2.75% projected inflation and demographic assumptions relating to mortality rates, length of service, rates of disability, rates of withdrawal, probability of refund, and merit salary increases. The 2017 CalSTRS Actuarial Valuation also assumes that all

A-24 members hired on or after January 1, 2013 are subject to the provisions of PEPRA (as defined herein). See "­ California Public Employees' Pension Reform Act of 2013" below for a discussion of the pension reform measure signed by the Governor in August 2012 expected to help reduce future pension obligations of public employers with respect to employees hired on or after January 1, 2013. Future estimates of the actuarial unfunded liability may change due to market performance, legislative actions, changes in actuarial assumptions and other experiences that may differ from the actuarial assumptions.

On February 1, 2017, the State Teachers' Retirement Board voted to adopt revised actuarial assumptions reflecting members' increasing life expectancies and current economic trends. The revised assumptions include a decrease from 7.50% to a 7.25% investment rate of return for the June 30, 2016 actuarial valuation, a decrease from 7.25% to a 7.00% investment rate of return for the June 30, 2017 actuarial valuation, a decrease from 3.75% to a 3.50% projected wage growth, and a decrease from 3.00% to a 2.75% price inflation factor.

As indicated above, there was no required contribution from teachers, school districts or the State to fund the unfunded actuarial liability for the CalSTRS defined benefit program and only the State legislature can change contribution rates. The actuarial valuation from June 30, 2016 noted that, as of June 30, 2017, the aggregate contribution rate, inclusive of an equivalent rate contribution of 10.219% from members, 8.00% from employers relating to the base rate, 0.25% from employers based on the sick leave rate, 10.096% from employers based on the supplemental rate, 1.881 % from the State based on the base rate and 4.021 % from the State based on the supplemental rate equivalent to 34.467%.

As part of the 2014-15 State Budget, the Governor signed Assembly Bill 1469 which implemented a new funding strategy for CalSTRS, increasing the employer contribution rate in fiscal year 2014-15 from 8.25% to 8.88% of covered payroll. Such rate would increase by 1.85% beginning in fiscal year 2015-16 until the employer contribution rate is 19.10% of covered payroll as further described below. Member contributions also increased from 8.00% to a total of 10.25% for members hired on or before December 31, 2012 and 9.205% for members hired on or after January 1, 2013 effective July 1, 2016. The State's total contribution also increased from approximately 3% in fiscal year 2013-14 to 6.30% of payroll in fiscal year 2016-17, plus the continued payment of 2.5% of payroll annual for a supplemental inflation protection program for a total of 8.80%. In addition, AB 1469 provides the State Teachers Retirement Board with authority to modify the percentages paid by employers and employees for fiscal year 2021-22 and each fiscal year thereafter to eliminate the CalSTRS unfunded liability by June 30, 2046. The State Teachers Retirement Board would also have authority to reduce employer and State contributions if they are no longer necessary.

Pursuant to Assembly Bill 1469, school districts' contribution rates will increase in accordance with the following schedule:

School District Effective Date Contribution Rate to (July 1) CalSTRS 2018 16.28% 2019 18.13 2020 19.10

Source: AssemblyBill 1469.

The District's employer contribution to CalSTRS from the general fund was approximately $18.7 million for fiscal year 2017-18 and is projected to be approximately $21.1 million in fiscal year 2018-19. The following table sets forth the District's regular annual contributions to CalSTRS for fiscal years 2008-09 through 2017-18, and its projected contribution for fiscal year 2018-19. With the implementation of AB 1469, the District anticipates that its contributions to CalSTRS will significantly increase in future fiscal years as compared to prior fiscal years, by approximately $2.0 million, $1.8 million and $1.1 million in fiscal years 2018-19, 2019-20 and 2020-21, respectively. Such increases may have a significant impact on the general fund.

A-25 Annual Regular CalSTRS Contributions Fiscal Years 2008-09 through 2018-19

Fiscal Year District Contributions 2008-09 $ 6,887,546 2009-10 6,633,915 2010-11 6,440,763 2011-12 6,315,027 2012-13 6,099,241 2013-14 6,160,033 2014-15 11,030,442(!) 2015-16 13,927,234 2016-17 17,191,087 2017-18 18, 707,544(2) 2018-19 21,053,768(3)

Cl) Reflects reporting requirement pursuant to GASE Statement No. 68, effective fiscal year 2014-15, which requires local education agencies to recognize the State's contribution to Cal ST RS on behalf of agencies' employees. The 2014-15 general fund on-behalf payment was $4,168,587 and the District's contribution was $6,861,855.26. C2> District's unaudited actuals for fiscal year 2017-18. C3) Projected. Source: The District.

CalSTRS produces a comprehensive annual financial report which includes financial statements and required supplementary information. Copies of the CalSTRS comprehensive annual financial report may be obtained from CalSTRS. The information presented in these reports is not incorporated by reference in this Official Statement.

CalPERS. All qualifying classified employees of K-12 school districts in the State are members in the California Public Employees' Retirement System ("CalPERS"), and all of such districts participate in the same plan. As such, all such districts share the same contribution rate in each year. However, unlike school districts' participating in CalSTRS, the school districts' contributions to CalPERS fluctuate each year and include a normal cost component and a component equal to an amortized amount of the unfunded liability. Accordingly, the District cannot provide any assurances that the District's required contributions to CalPERS in future years will not significantly vary from any current projected levels of contributions to CalPERS.

The CalPERS Schools Pool Actuarial Valuation as of June 30, 2016, which was released in October 2017, indicates that the funded ratio as of June 30, 2016 is approximately 71.9% on a market value of assets basis. According to the CalPERS Schools Pool Actuarial Valuation as of June 30, 2015, the CalPERS Schools plan had a funded ratio of 77.5% on a market value of assets basis. The funded ratio, on a market value basis, as of June 30, 2014, June 30, 2013, June 30, 2012, June 30, 2011 and June 30, 2010 was 86.6%, 80.5%, 75.5%, 78.7% and 69.5%, respectively. On April 17, 2013, the CalPERS Board of Administration approved a recommendation changing the CalPERS amortization and smoothing policies intended to reduce volatility in employer contribution rates. Beginning with the June 30, 2015 valuation, CalPERS employs an amortization and smoothing policy that will apportion all gains and losses over a fixed 30-year period with the increases or decreases in the rate spread directly over a five-year period (as compared to the previous policy of spreading investment returns over a 15-year period with experience gains and losses paid for over a rolling 30-year period). In November 2015, the CalPERS Board of Administration approved a proposal pursuant to which the discount rate would be reduced by a minimum of 0.05 percentage points to a maximum of 0.25 percentage points in years when investment returns outperform the then­ current discount rate of 7.5% by at least four percentage points. In December 2016, the CalPERS Board of Administration voted to lower the discount rate from 7.5% to 7.375% for fiscal year 2017-18, 7.25% for fiscal year 2018-19, and 7.0% beginning fiscal year 2019-20. The new discount rates took effect beginning July 1, 2017 for the State and July 1, 2018 for school districts. The change in the assumed rate of return is expected to result in increases in the District's normal costs and unfunded actuarial liabilities.

In February of 2014, the CalPERS Board of Administration adopted new actuarial demographic assumptions that take into account greater life expectancies of public employees. Such assumptions are expected to

A-26 increase costs for the State and public agency employers (including school districts), which costs will be amortized over 20 years and phased in over three years beginning in fiscal year 2014-15 for the State and amortized over 20 years and phased in over five years beginning in fiscal year 2016-17 for the employers. CalPERS applied the assumptions beginning with the June 30, 2015 valuation for the schools pool, setting employer contribution rates for fiscal year 2016-17. CalPERS estimates that the new demographic assumptions could cost public agency employers up to 9% of payroll for safety employees and up to 5% of payroll for miscellaneous employees at the end of the five year phase-in period. To the extent, however, that future experiences differ from CalPERS' current assumptions, the required employer contributions may vary. In April 2016, CalPERS approved an increase to the contribution rate for school districts from 11.847% during fiscal year 2015-16 to 13.888% during fiscal year 2016-17. In April 2017, CalPERS adopted an employer contribution rate of 15.531 % for the schools pool and a member contribution rate of 6.5% for school employees subject to PEPRA for the period of July 1, 2017 to June 30, 2015.

In the current budget year, the District's contribution to CalPERS is budgeted at $7.5 million, compared to a fiscal year 2017-18 general fund expense of approximately $6.1 million. With the change in actuarial assumptions described above, the District anticipates that its contributions to CalPERS will significantly increase in future fiscal years as the increased costs are phased in. The implementation of PEPRA (see "- California Public Employees' Pension Reform Act of 2013" below), however, is expected to help reduce certain future pension obligations of public employers with respect to employees hired on or after January 1, 2013. The District anticipates that its contributions to CalPERS will increase in future fiscal years as compared to prior fiscal years by approximately $1.1 million, $1.2 million, $1.3 million, and $0.7 million in fiscal years 2018-19, 2019-20, 2020-21 and 2021-22, respectively.

Annual CalPERS Regular Contributions Fiscal Years 2008-09 through 2018-19

Fiscal Year District Contributions(!) 2008-09 $3,549,704 2009-10 3,538, 162 2010-11 3,889,232 2011-12 3,979,967 2012-13 3,990,698 2013-14 4,013,860 2014-15 4,279,693 2015-16 4,574,796 2016-17 5,434,337 2017-18 6,068,562(2) 2018-19 7,549,554(3)

Cl) Includes Regular Contributions and employee contributions paid by the District and "PERS Recapture." Pursuant to State law, the State is allowed to recapture the savings corresponding to a lower CalPERS rate by reducing a school district's revenue limit apport:iomnent by the amollllt of the school district's CalPERS savings in that year. Such recapture has occurred with respect to the District in each fiscal year since fiscal year 1982-83. C2> District's unaudited actuals for fiscal year 2017-18. C3) Projected. Sowces: The District.

CalPERS produces a comprehensive annual financial report and actuarial valuations that include financial statements and required supplementary information. Copies of the CalPERS comprehensive annual financial report and actuarial valuations may be obtained from CalPERS Financial Services Division. The information presented in these reports is not incorporated by reference in this Official Statement.

California Public E mpl0yees' Pension Reform Act of 2013 The Governor signed the California Public Employee's Pension Reform Act of 2013 (the "Reform Act" or "PEPRA") into law on September 12, 2012. The Reform Act affects both CalSTRS and CalPERS, most substantially as they relate to new employees hired after January 1, 2013 (the "Implementation Date"). As it pertains to CalSTRS participants hired after the Implementation Date, the Reform Act changes the normal retirement age, increasing the eligibility for the 2% "age factor" (the percent of final compensation to which an employee is entitled to for each year of service) from age 60 to 62 and

A-27 increasing the eligibility of the maximum age factor of 2.4% from age 63 to 65. For non-safety CalPERS participants hired after the Implementation Date, the Reform Act changes the normal retirement age by increasing the eligibility for the 2% age factor from age 55 to 62 and also increases the eligibility requirement for the maximum age factor of 2.5% to age 67.

The Reform Act also implements certain other changes to CalPERS and CalSTRS including the following: (a) all new participants emolled in CalPERS and CalSTRS after the Implementation Date are required to contribute at least 50% of the total annual normal cost of their pension benefit each year as determined by an actuary, (b) CalSTRS and CalPERS are both required to determine the final compensation amount for employees based upon the highest annual compensation eamable averaged over a consecutive 36-month period as the basis for calculating retirement benefits for new participants emolled after the Implementation Date (currently 12 months for CalSTRS members who retire with 25 years of service), and (c) "pensionable compensation" is capped for new participants emolled after the Implementation Date at 100% of the federal Social Security contribution and benefit base for members participating in Social Security or 120% for CalSTRS and CalPERS members not participating in social security.

The District is unable to predict what the amount of State pension liabilities will be in the future, or the amount of the contributions which the District may be required to make (except as already announced). CalSTRS and CalPERS liabilities are more fully described in APPENDIX B - "AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2017," Note 14.

GASB 67 and 68 In June 2012, the Govermnental Accounting Standards Board approved a pair ofrelated statements, GASE Statement No. 67, Financial Reporting for Pension Plans ("GASE 67"), which addresses financial reporting for pension plans, and GASE Statement No. 68, Accounting and Financial Reporting for Pensions ("GASE 68"), which establishes new accounting and financial reporting requirements for govermnents that provide their employees with pensions. The guidance contained in these statements changed how governments calculate and report the costs and obligations associated with pensions. GASE 67 replaced the requirements of GASE Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, for most public employee pension plans, and GASE 68 replaced the requirements of GASE Statement No. 27, Accounting for Pensions by State and Local Govermnental Employers, for most govermnent employers. The new statements also replaced the requirements of GASE Statement No. 50, Pension Disclosures, for those govermnents and pension plans. Certain of the major changes included: (i) the inclusion of unfunded pension liabilities on the govermnent's balance sheet (such unfunded liabilities are currently typically included as notes to the govermnent's financial statements); (ii) full pension costs would be shown as expenses regardless of actual contribution levels; (iii) lower actuarial discount rates would be required to be used for most plans for certain purposes of the financial statements, resulting in increased liabilities and pension expenses; and (iv) shorter amortization periods for unfunded liabilities would be required to be used for certain purposes of the financial statements, which generally would increase pension expenses. GASE 67 took effect in fiscal years beginning after June 15, 2013, and GASE 68 took effect in fiscal years beginning after June 15, 2014. The District's audited financial statements attached as APPENDIX B reflect the reporting requirements pursuant to GASE 68. See APPENDIX B - "AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2017," Note I.

Other Post-E mpl0yment Benefits ("OPEB "). The District implemented GASE Statement No. 45 ("GASE 45"), Accounting and Financial Reporting by Employers for Post-Employment Benefits Other Than Pensions, during the year ended June 30, 2008, recognizing OPEB liabilities in its audited financial reports. The Post­ Employment Benefit Plan (the "OPEB Plan") is a single-employer defined benefit healthcare plan administered by the District. The OPEB Plan provides medical and dental insurance benefits to eligible retirees and their spouses. As of June 30, 2017, membership of the OPEB Plan consists of 250 retirees and beneficiaries currently receiving benefits, and 1,860 active OPEB Plan members. The contribution requirements of OPEB Plan members and the District are established and may be amended by the District and the Grossman! Education Association ("GEA"), the local California Service Employees Association ("CSEA"), and the local Service Employees International Union ("SEIU"). The required contribution is based on projected pay-as-you-go financing requirements. In fiscal year 2016-17, the annual OPEB cost for the OPEB Plan was $6,061,809. The District contributed 31.9% of the annual required contribution to the plan, or $3,259,165, including $2,317,153 in pay-as-you-go costs and $942,462 in implicit rate subsidies. The net obligation for fiscal year 2016-17 was $24,760,143. In 2017, the District

A-28 implemented GASE Statement No. 75 ("GASE 75") as a replacement to GASE 45. Under GASE 75, reporting of the OPEB liability changes from the Net OPEB obligation previously reported under GASE 45 to a Total OPEB obligation. This has the effect of recognizing the full OPEB liability instead of the net OPEB liability. As of June 30, 2017 valuation date, the District's Total OPEB liability was $60,391,801. The District commenced prefunding for retiree health benefits through the California Employers' Retiree Benefits Trust ("CERBT") in June 2014. On June 30, 2017, the District's balance in CERBT was $3,366,653. The CERBT balance reduces the Total OPEB obligation to a Net OPEB liability equal to $57,025,148. See APPENDIX B - "AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2017," Note 15.

The District undertook an actuarial study, which was completed June 30, 2017. In the actuarial valuation, the Entry Age Normal (BAN) cost method was used. The actuarial assumptions included (a) a 6% investment rate of return, assuming the District continues to maintain its assets in the CERBT under Investment Strategy 3, (b) inflation of 2.75%, (c) salary increases of 3.0% and ( d) a discount rate of 3.4%.

Accrued Vacation and other Obligations The long-term portion of accumulated and unpaid employee vacation for the District as of June 30, 2017 was $2,747,883.

(Remainder of Page Intentionally Left Blank)

A-29 Summary of District Revenues and Expenditures

The following tables summarize the District's actual or projected general fund revenue, expenditures and fund balances for fiscal years 2013-14 through 2017-18. The following table presents audited figures in a format showing expenditures by object rather than by function. See also APPENDIX B - "AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2017."

GROSSMONT UNION HIGH SCHOOL DISTRICT General Fund Revenues, Expenditures and Fund Balances 2013-14 through 2017-18

2017-18 2013-14 2014-15 2015-16 2016-17 Unaudited Actuals Actuals Actuals Cl) Actuals Cl) ActualsC2> Revenue/Receipts Revenue Limit/LCFF Sources $129,545,694 $136,098,547 $154,814,682 $158,305,393 $160,385,973 State Aid 67,419,275 74,521,992 79,279,483 76,495,629 74,641,360 Local Sources 77,445,216 83,295,592 93,602,187 102,058,600 108,056,294 Transfers (15,318,797) (21,719,037) (18,066,988) (20,248,836) (22,311,681) Federal Revenue 11,847,681 12,501,642 11,644,756 12,852,722 12,900,774 Other State Revenue 10,499,301 12,554,583 25,231,915 21,044,009 18,240,594 Other Local Revenue 25 719 879 26 534 357 25 773 660 24 289 776 24 696 856 TOTAL REVENUES $177,612,555 $187,689,129 $217,465,013 $216,491,900 $216,224,197

Expenditures/Disbursements Certificated Salaries $77,916, 760 $80,884,365 $85,027,857 $88,564,228 $86, 714,285 Classified Salaries 35,441,146 36,978,528 39,293,198 40,443,579 39,786,544 Employee Benefits 35,134,311 41,750,437 45,898,585 50,735,302 52,583,372 Books and Supplies 9,307,127 8,245,676 9,371,548 8,117,540 9,134,184 Services/Other Operating Expenditures 22,810,052 23,628,908 26,603,702 25,707,451 25,996,743 Capital Outlay 1,090,539 1,304,639 3,191,768 1,670,092 3,485,952 Other Outgo (excluding Transfers of Indirect/Direct Support Costs) 712,252 598,178 461,622 1,095,487 1,172,585 Transfers of Indirect/Direct Supports Costs (968,204) (911,328) 0,074,036) 0,085,865) 0,128,139) TOT AL EXPENDITURES $181,443,983 $192,479,403 $208,774,244 $215,247,814 $217, 745,526

Excess of Revenues Over/(Under) (3,831,428) (4,790,274) 8,690,769 1,244,086 (1,521,329) Expenditures

Other Financing Sources/(U ses) Transfers In 30,628 48,041 587,993 63,335 14,433 Transfers Out (764,976) Other Sources/Uses 2,618,607(3) TOT AL OTHER SOURCES/USES $30,628 $(716,935) $587,993 $63,335 $2,633,039

Net Change in Fund Balances $(3,800,800) $(5,507,209) $9,278,762 $1,307,421 $1,111,711 4 Fund Balance, Beginning $22,317,568 $18,516,768 $13,009,559 $22,288,321 $23,594,992' ' 4 Fund Balance, Ending $18,516,768 $13,009,559 $22,288,321 $23,595,742' ' $24, 706, 702

Sources: District's audited financial statements for fiscal years ended June 30, 2014; 2015; 2016; District's 2017-18 unaudited actuals for fiscal year ended June 30, 2018. Cll Amounts do not agree with amounts reported on the Statement of Revenues, Expenditures, and Changes in Fund Balances contained in the audited financial statements for the respective fiscal year because the amounts on that schedule include the financial activity of the Special Reserve Fund for Other Than Capital Outlay, in accordance with the fund type definitions promulgated by GASB Statement No. 54. c2i The District adopted unaudited actuals on September 13, 2018, showing an ending fund balance of $24,706,702. The District expects to adopt audited financial statements for fiscal year 2017-18 in December 2018. Totals may not add due to rounding. C3l Proceeds from capital leases. C4l The difference between the ending balance for fiscal year 2016-17 and the beginning balance for fiscal year 2017-18 is due to differences in the accounting method used by auditors in preparing audited financial statements and by the District in preparing unaudited financial statements.

A-30 As shown in the previous table, the District's expenditures exceeded its revenues in fiscal years 2013-14 and 2014-15 and expenditures are expected to exceed its revenues in fiscal year 2017-18. In these years when the District has nm a deficit, such deficit has been filled by drawing down the District's general fund balance. The District experienced increased revenues in fiscal year 2015-16 without a similar increase in expenditures that resulted in an increased fund balance to approximately $22.3 million. The District's 2018-19 Adopted Budget projects the year-end balance will decrease approximately 10.9% to approximately $22.0 million.

The following table sets forth the budgeted revenues, expenditures and changes in fund balances for the District's general fund for the fiscal years 2018-19. Certain adjustments may be made throughout the year based on actual State funding and actual District revenues and tax collections. The District cannot make any predictions regarding the disposition of additional pending budget legislation or its effect on the District. The District's budget is a planning tool, and does not represent a prediction as to the actual achievement of any budgeted revenues or fund balances.

GROSSMONT UNION HIGH SCHOOL DISTRICT Budgeted General Fund Summary for Fiscal Year 2018-19(1)

2018-19 Budgeted

REVENUES LCFF/Revenue Limit Sources: $166,268,164 Federal Revenue 12,064,737 Other State Revenue 18,585,363 Other Local Revenue 22,900,126 TOTAL $219,818,390

EXPENDITURES Certificated Salaries $90,717,187 Classified Salaries 40,877,610 Employee Benefits 57,448,158 Books and Supplies 6,798,156 Services/Other Operating Expenditures 26,469,112 Other Outgo 1,157,319 Other Outgo - Transfers of Indirect Costs (1,224,382) Capital Outlay 293,030 TOTAL $222,536,190

EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES $(2, 717,800)

OTHER FINANCING SOURCES (USES) Transfers In $25,000 Transfers Out TOTAL OTHER FINANCING SOURCES (USES) $25,000

NET CHANGE IN FU1ID BALANCE $(2,692,800)

Fund Balance - Beginning $24, 706, 702 Fund Balance - Ending $22,013,902

Cll Adopted budget as of June 18, 2018. Source: The District.

District Debt Structure and Long Term Obligations

Certain of the District's outstanding indebtedness is described below. For further discussion of the District's outstanding indebtedness, see APPENDIX B - "AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2017," Note 10.

A-31 General Obligation Bonds. As of September 1, 2018, the District has $534,331,376.55 principal amount of general obligation bonds outstanding and $184,943,321.80 remaining voter-approved authorization for future issuances prior to the sale of the Bonds.

The principal amount outstanding does not include the accreted value on those portions of the General Obligation Bonds, Election of 2004, and the General Obligation Bonds, Election of 2008, that were issued as capital appreciation bonds. See APPENDIX B - "AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2017," Note 10.

For information on the annual debt service for the outstanding bonds of the District (assuming no additional optional redemptions prior to maturity), see "DEBT SERVICE -Aggregate Annual Debt Service."

Lease Ra,enue Bonds. The District does not have any obligations related to the San Diego County Educational Facilities Authority No. 1 (the "Facilities Authority") to which it is a party, nor does the District have any outstanding lease revenue bonds with respect to the Facilities Authority.

Certificates of Participation. The District has no outstanding certificates of participation.

Tax and Ra,enue Anticipation Notes. On August 28, 2018, the District issued $21,000,000 of Tax and Revenue Anticipation Notes for fiscal year 2018-19 for cash flow purposes. The notes are due and payable from the general fund of the District on June 28, 2019.

Capital Leases. The District leases facilities and equipment under agreements that provide for title to pass upon expiration of the lease period. Future minimum lease payments as of July 31, 2018, are as follows:

GROSSMONT UNION HIGH SCHOOL DISTRICT Annual Lease Payments Capital Leases<')

Annual Year Ended July 31, Lease Payments 2018 $230,555.66 2019 230,555.66 2020 230,555.66 2021 230,555.66 Total $922,222.64

Cl) The District anticipates executing additional bus leases as part of its bus replacement program in upcoming fiscal years and has budgeted approximately $320,000 in annual lease payments. Source: The District.

Capital Financing Plan

The District Board approved its original Long Range Facility Plan (the "Master Plan") in October 2003, which led to the authorization of a bond issue ("Proposition H") in 2004, and issuance, in 2004, 2006, and 2008, of an aggregate $274 million in facilities improvement bonds. Since 2004, substantial modernization work has been completed at each of the District's campuses.

In June 2008, the District undertook an update of the Master Plan, which identified additional facilities improvement needs of approximately $1 billion to (a) modernize campus facilities and structures at its eleven comprehensive high schools, one alternative education facility and several adult education facilities not anticipated in Proposition H, (b) complete the first phase of construction of a new high school, and (c) bring all campus facilities up to a common standard parity. The District expects to finance the school modernization and construction costs ("a" and "b" above) from the proceeds of voter-approved debt and State matching funds. The Proposition U bonding authority of $417 million, combined with expected State matching funds of approximately $81.9 million,

A-32 are expected to fund up to 90% of these costs over the next five years. The District has not yet identified funding sources for the parity facilities improvements ("c" above) identified in the updated Master Plan. The Master Plan was further revised in October 2009 in order to accommodate programmatic improvements in career technical education, special education, and the arts.

Since early 2015, planning efforts have been under way to address additional facility needs and the slowdown of funding under Proposition U The 2016 updated facilities needs assessment outlines a total remaining need for the District of over $646 million to include new construction, modernization and site work/athletics. On November 8, 2016, Measure BB was approved by voters in the District, authorizing up to $128 million of general obligation bonds, which, along with anticipated State match funding up to $50 million, will allow the District to complete much needed remaining Proposition U projects and additional facility needs as outlined in the 2016 needs assessment.

Insurance, Risk Pooling and Joint Powers Arrangements

The District participates in joint ventures under joint powers agreements ("JPAs") with the San Diego County Risk Management Authority (the "Risk Pool") and the San Diego County Educational Facilities Authority No. I (the "Facilities Authority"). The relationship between the District and the JPAs is such that the JPAs are not component units of the District for financial reporting purposes.

The Risk Pool arranges for and provides workers' compensation, property, and liability insurance and other programs for various school districts in the County. The governing board of the Risk Pool is comprised of a representative from each member school district. The Risk Pool has budgeting and financial reporting requirements independent of the participating school districts. During the year ended June 30, 2018, the District made payment of approximately $1,208, 174 to San Diego County School Risk Management for premiums.

The Facilities Authority is a JPA of the District and the County Board that was established to provide funding for a joint use educational facility (the "Joint Use Facility"). The governing board of the Facilities Authority is comprised of two representatives from each of the two participants. For information on financing related to the funding of the Joint Use Facility, see"- District Debt Structure and Long Term Obligations - Lease Revenue Bonds" above.

The District is not a member of any other joint powers agencies or authorities. See APPENDIX B - "AUDITED FINANCIAL STATEMENTS OF THE DISTRICT FOR THE FISCAL YEAR ENDED JUNE 30, 2017," Note 11.

SCHOOL DISTRICT BUDGET PROCEDURES AND REQUIREMENTS

District Budget Process and County Review

State law requires school districts to adopt a balanced budget in each fiscal year. The State Department of Education imposes a uniform budgeting and accounting format for school districts.

Under current law, a school district governing board must adopt and file with the county superintendent of schools a tentative budget by July I in each fiscal year. The District is under the jurisdiction of the San Diego County Superintendent of Schools.

The county superintendent must review and approve, conditionally approve or disapprove the budget no later than August 15. The county superintendent is required to examine the adopted budget for compliance with the standards and criteria adopted by the State Board of Education and identify technical corrections necessary to bring the budget into compliance with the established standards. If the budget is disapproved, it is returned to the District with recommendations for revision. The District is then required to revise the budget, hold a public hearing thereon, adopt the revised budget and file it with the county superintendent no later than September 8. Pursuant to State law, the county superintendent has available various remedies by which to impose and enforce a budget that complies with State criteria, depending on the circumstances, if a budget is disapproved. After approval of an adopted budget, the school district's administration may submit budget revisions for governing board approval.

A-33 Subsequent to approval, the county superintendent will monitor each district under its jurisdiction throughout the fiscal year pursuant to its adopted budget to determine on an ongoing basis if the district can meet its current or subsequent year financial obligations. If the county superintendent determines that a district cannot meet its current or subsequent year's obligations, the county superintendent will notify the district's governing board of the determination and may then do either or both of the following: (a) assign a fiscal advisor to enable the district to meet those obligations or (b) if a study and recommendations are made and a district fails to take appropriate action to meet its financial obligations, the county superintendent will so notify the State Superintendent of Public Instruction, and then may do any or all of the following for the remainder of the fiscal year: (i) request additional information regarding the district's budget and operations; (ii) develop and impose, after also consulting with the district's governing board, revisions to the budget that will enable the district to meet its financial obligations; and (iii) stay or rescind any action inconsistent with such revisions. However, the county superintendent may not abrogate any provision of a collective bargaining agreement that was entered into prior to the date upon which the county superintendent assumed authority.

A State law adopted in 1991 ("AB 1200") imposed additional financial reporting requirements on school districts, and established guidelines for emergency State aid apportionments. Under the provisions of AB 1200, each school district is required to file interim certifications with the county superintendent (on December 15, for the period ended October 31, and by mid-March for the period ended January 31) as to its ability to meet its financial obligations for the remainder of the then-current fiscal year and, based on current forecasts, for the subsequent fiscal year. The county superintendent reviews the certification and issues either a positive, negative or qualified certification. A positive certification is assigned to any school district that will meet its financial obligations for the current fiscal year and the subsequent two fiscal years. A negative certification is assigned to any school district that is deemed unable to meet its financial obligations for the remainder of the fiscal year or the subsequent fiscal year. A qualified certification is assigned to any school district that may not meet its financial obligations for the current fiscal year or the two subsequent fiscal years. A school district that receives a qualified or negative certification may not issue tax and revenue anticipation notes or certificates of participation without approval by the county superintendent. The District received a positive certification on its first interim report and its second interim report for fiscal year 2017-18.

For school districts under fiscal distress, the county superintendent of schools is authorized to take a number of actions to ensure that the school district meets its financial obligations, including budget revisions. However, the county superintendent is not authorized to approve any diversion of revenue from ad valorem taxes levied to pay debt service on district general obligation bonds. A school district that becomes insolvent may, upon the approval of a fiscal plan by the county superintendent of schools, receive an emergency appropriation from the State, the acceptance of which constitutes an agreement to submit to management of the school district by a Superintendent appointed administrator.

In the event the State elects to provide an emergency appropriation to a school district, such appropriation may be accomplished through the issuance of "State School Fund Apportionment Lease Revenue Bonds" to be issued by the California Infrastructure and Economic Development Bank, on behalf of the school district. State law provides that so long as such bonds are outstanding, the recipient school district (via its State-appointed adininistrator) cannot file for bankruptcy.

Accounting Practices

The accounting policies of the District conform to generally accepted accounting principles in accordance with the definitions, instructions and procedures of the California School Accounting Manual, as required by the State Education Code. Revenues are recognized in the period in which they become both measurable and available to finance expenditures of the current fiscal period. Expenditures are recognized in the period in which the liability is incurred.

Nigro & Nigro PC, Certified Public Accountants, serves as independent auditor to the District and its report for fiscal year ended June 30, 2017, is attached hereto as APPENDIX B. The District considers its audited financial statements to be public information, and accordingly no consent has been sought or obtained from the auditor in connection with the inclusion of such statements in this Official Statement. The auditor has made no representation

A-34 in connection with inclusion of the audit excerpts herein that there has been no material change in the financial condition of the District since the audit was concluded.

The final (unaudited) statement of receipts and expenditures for each fiscal year ending June 30 is required by State law to be approved by the District's Governing Board by September 15, and the audit report must be filed with the San Diego County Superintendent of Schools and State officials by December 15 of each year The District is required by law to adopt its audited financial statements following a public meeting to be conducted no later than January 31 following the close of each fiscal year

CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING DISTRICT REVENUES AND APPROPRIATIONS

Limitations on Revenues

On June 6, 1978 voters approved Proposition 13 ("Proposition 13"), which added Article XIIIA to the State Constitution ("Article XIIIA"). Article XIIIA limits the amount of any ad valorem tax on real property to 1% of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service on (i) indebtedness approved by the voters prior to July 1, 1978, (ii) bonded indebtedness for the acquisition or improvement of real property which has been approved on or after July 1, 1978 by two-thirds of the voters on such indebtedness, and (iii) bonded indebtedness incurred by a school district or community college district for the construction, reconstruction, rehabilitation or replacement of school facilities or the acquisition or lease of real property for school facilities, approved by 55% of the voters of the district, but only if certain accountability measures are included in the proposition. The tax for payment of the District's bonds approved at the elections of 2004, 2008, and 2016 falls within the exception for bonds approved by a 55% vote. Article XIIIA defines full cash value to mean "the county assessor's valuation of real property as shown on the 1975-76 tax bill under full cash value, or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership have occurred after the 1975 assessment." This full cash value may be increased at a rate not to exceed 2% per year to account for inflation.

Article XIIIA has subsequently been amended to permit reduction of the "full cash value" base in the event of declining property values caused by damage, destruction or other factors, to provide that there would be no increase in the "full cash value" base in the event of reconstruction of property damaged or destroyed in a disaster and in other minor or technical ways.

County of Orange v. Orange County Assessment Appeals Board No. 3 Section 51 of the Revenue and Taxation Code permits county assessors who have reduced the assessed valuation of a property as a result of natural disasters, economic downturns or other factors, to subsequently "recapture" such value (up to the pre-decline value of the property) at an annual rate higher than 2%, depending on the assessor's measure of the restoration of value of the damaged property. The constitutionality of this procedure was challenged in a lawsuit brought in 2001 in the Orange County Superior Court, and in similar lawsuits brought in other counties, on the basis that the decrease in assessed value creates a new "base year value" for purposes of Proposition 13 and that subsequent increases in the assessed value of a property by more than 2% in a single year violate Article XIIIA On appeal, the California Court of Appeal upheld the recapture practice in 2004, and the State Supreme Court declined to review the ruling, leaving the recapture law in place.

Legislation Implementing Article XI I IA Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The 1% property tax is automatically levied by the county and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to 1989.

Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the 2% annual adjustment are allocated among the various jurisdictions in the "taxing area" based upon their respective "situs." Any such allocation made to a local agency continues as part of its allocation in future years.

A-35 Beginning in the 1981-82 fiscal year, assessors in the State no longer record property values on tax rolls at the assessed value of 25% of market value which was expressed at $4 per $100 assessed value. All taxable property is now shown at full market value on the tax rolls. Consequently, the tax rate is expressed as $1 per $100 of taxable value. All taxable property value included in this Official Statement is shown at 100% of market value (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value.

Article XIIIB of the State Constitution

An initiative to amend the State Constitution entitled "Limitation of Government Appropriations" was approved on September 6, 1979, thereby adding Article XIIIB to the State Constitution ("Article XIIIB"). Under Article XIIIB state and local govenunental entities have an annual "appropriations limit" and are not permitted to spend certain moneys which are called "appropriations subject to limitation" (consisting of tax revenues, state subventions and certain other funds) in an amount higher than the "appropriations limit." Article XIIIB does not affect the appropriation of moneys which are excluded from the definition of "appropriations subject to limitation," including debt service on indebtedness existing or authorized as of January 1, 1979, or bonded indebtedness subsequently approved by the voters. In general terms, the "appropriations limit" is to be based on certain 1978-79 expenditures, and is to be adjusted annually to reflect changes in consumer prices, populations, and services provided by these entities. Among other provisions of Article XIIIB, if these entities' revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years.

In fiscal year 2017-18, the District had an appropriations limit of $119,097,869 and appropriations subject to such limit of $119,097,869, and estimates an appropriations limit in 2018-19 of $124, 110,799. Any proceeds of taxes received by the District in excess of the allowable limit are absorbed into the State's allowable limit.

Article XIIIC and Article XIIID of the State Constitution

On November 5, 1996, the voters of the State of California approved Proposition 218, popularly known as the "Right to Vote on Taxes Act." Proposition 218 added to the State Constitution Articles XIIIC and XIIID ("Article XIIIC" and "Article XIIID," respectively), which contain a number of provisions affecting the ability of local agencies, including school districts, to levy and collect both existing and future taxes, assessments, fees and charges.

According to the "Title and Summary" of Proposition 218 prepared by the State Attorney General, Proposition 218 limits "the authority of local governments to impose taxes and property-related assessments, fees and charges." Among other things, Article XIIIC establishes that every tax is either a "general tax" (imposed for general governmental purposes) or a "special tax" (imposed for specific purposes), prohibits special purpose government agencies such as school districts from levying general taxes, and prohibits any local agency from imposing, extending or increasing any special tax beyond its maximum authorized rate without a two-thirds vote; and also provides that the initiative power will not be limited in matters of reducing or repealing local taxes, assessments, fees and charges. Article XIIIC further provides that no tax may be assessed on property other than ad valorem property taxes imposed in accordance with Articles XIII and XIIIA of the State Constitution and special taxes approved by a two-thirds vote under Article XIIIA, Section 4. Article XIIID deals with assessments and property-related fees and charges, and explicitly provides that nothing in Article XIIIC or XIIID will be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development; however it is not clear whether the initiative power is therefore unavailable to repeal or reduce developer and mitigation fees imposed by the District. Developer fees imposed by the District are restricted as to use and are neither pledged nor available to pay the Bonds.

The District receives a portion of the basic 1% ad valorem property tax levied and collected by the County pursuant to Article XIIIA of the California Constitution. The provisions of Proposition 218 may have an indirect effect on the District, such as by limiting or reducing the revenues otherwise available to other local governments whose boundaries encompass property located within the District thereby causing such local governments to reduce service levels and possibly adversely affecting the value of property within the District.

A-36 Statutory Limitations

On November 4, 1986, State voters approved Proposition 62, an initiative statute liniiting the iniposition of new or higher taxes by local agencies. The statute: (a) requires new or higher general taxes to be approved by two-thirds of the local agency's governing body and a majority of its voters; (b) requires the inclusion of specific information in all local ordinances or resolutions proposing new or higher general or special taxes; (c) penalizes local agencies that fail to comply with the foregoing; and ( d) required local agencies to stop collecting any new or higher general tax adopted after July 31, 1985, unless a majority of the voters approved the tax by November I, 1988.

Appellate court decisions following the approval of Proposition 62 determined that certain provisions of Proposition 62 were unconstitutional. However, the California Supreme Court upheld Proposition 62 in its decision on September 28, 1995 in Santa Clara County Transportation Authority v. Guardino. This decision reaffirmed the constitutionality of Proposition 62. Certain matters regarding Proposition 62 were not addressed in the Supreme Court's decision, such as whether the decision applies retroactively, what remedies exist for taxpayers subject to a tax not in compliance with Proposition 62, and whether the decision applies to charter cities.

Proposition 98 and Proposition 111

On November 8, 1988, voters approved Proposition 98, a combined initiative constitutional amendinent and statute called the "Classroom Instructional Improvement and Accountability Act" (the "Accountability Act"). The Accountability Act changed State funding of public education below the university level, and the operation of the State's Appropriations Liniit. The Accountability Act guarantees State funding for K-12 school districts and community college districts (collectively, "K-14 districts") at a level equal to the greater of (a) the same percentage of general fund revenues as the percentage appropriated to such districts in 1986-87, which percentage is equal to 40.9%, or (b) the amount actually appropriated to such districts from the general fund in the previous fiscal year, adjusted for growth in emolhnent and inflation.

Since the Accountability Act is unclear in some details, there can be no assurance that the Legislature or a court might not interpret the Accountability Act to require a different percentage of general fund revenues to be allocated to K- 14 districts than the 40.9%, or to apply the relevant percentage to the State's budgets in a different way than is proposed in the Governor's Budget. In any event, the Governor and other fiscal observers expect the Accountability Act to place increasing pressure on the State's budget over future years, potentially reducing resources available for other State programs, especially to the extent the Article XIIIB spending liniit would restrain the State's ability to fund such other programs by raising taxes.

The Accountability Act also changes how tax revenues in excess of the State Appropriations Limit are distributed. Any excess State tax revenues up to a specified amount would, instead of being returned to taxpayers, be transferred to K-14 districts. Such transfer would be excluded from the Appropriations Limit for K-14 school districts and the K-14 school Appropriations Liniits for the next year would automatically be increased by the amount of such transfer. These additional moneys would enter the base funding calculation for K-14 districts for subsequent years, creating further pressure on other portions of the State budget, particularly if revenues decline in a year following an Article XIIIB surplus. The maxinium amount of excess tax revenues which could be transferred to schools is 4% of the mininium State spending for education mandated by the Accountability Act, as described above.

On June 5, 1990, State voters approved Proposition 111 (Senate Constitutional Amendinent !), which further modified the State Constitution to alter the spending liniit and education funding provisions of Proposition 98. Most significantly, Proposition 111 (I) liberalized the annual adjustments to the spending limit by measuring the "change in the cost of living" by the change in State per capita personal income rather than the Consumer Price Index, and specified that a portion of the State's spending limit would be adjusted to reflect changes in school attendance; (2) provided that 50% of the "excess" tax revenues, determined based on a two-year cycle, would be transferred to K-14 school districts with the balance returned to taxpayers (rather than the previous 100% but only up to a cap of 4% of the districts' mininium funding level), and that any such transfer to K-14 school districts would not be built into the school districts' base expenditures for calculating their entitlement for State aid in the following year and would not increase the State's appropriations limit; (3) excluded from the calculation of appropriations that are subject to the liniit appropriations for certain "qualified capital outlay projects" and certain increases in gasoline taxes, sales and use taxes, and receipts from vehicle weight fees; (4) provided that the Appropriations Limit for each unit of government, including the State, would

A-37 be recalculated beginning in the 1990-91 fiscal year, based on the actual limit for fiscal year 1986-87, adjusted forward to 1990-91 as if Senate Constitutional Amendment I had been in effect; and (5) adjusted the Proposition 98 formula that guarantees K-14 school districts a certain amount of general fund revenues, as described below.

Under prior law, K-14 school districts were guaranteed the greater of (a) 40.9% of general fund revenues (the "first test") or (b) the amount appropriated in the prior year adjusted for changes in the cost of living (measured as in Article XIIIB by reference to per capita personal income) and emollinent (the "second test"). Under Proposition 111, school districts would receive the greater of (a) the first test, (b) the second test or (c) a third test, which would replace the second test in any year when growth in per capita general fund revenues from the prior year was less than the annual growth in State per capita personal income. Under the third test, school districts would receive the amount appropriated in the prior year adjusted for change in emollment and per capita general fund revenues, plus an additional small adjustment factor. If the third test were used in any year, the difference between the third test and the second test would become a "credit" to be paid in future years when general fund revenue growth exceeds personal income growth.

Proposition 30 and Proposition 55

On November 6, 2012, voters approved Proposition 30, also referred to as the Temporary Taxes to Fund Education, Guaranteed Local Public Safety Fundmg, Initiative Constitutional Amendment. Proposition 30 temporarily (a) increased the personal income tax on certain of the State's income taxpayers by one to three percent for a period of seven years from January I, 2012 through the end of 2018, and (b) increased the sales and use tax by one-quarter percent for a period of four years from January I, 2013 through the end of 2016. The revenues generated from such tax increases are included in the calculation of the Proposition 98 minimum fundmg guarantee (see "-Proposition 98 and Proposition 111" above). The revenues generated from such temporary tax increases are deposited into a State account created pursuant to Proposition 30 (the "Education Protection Account"), and 89% of the amounts therein are allocated to school districts and 11 % of the amounts therein are allocated to community college districts.

The Proposition 30 sales and use tax increases expired at the end of the 2016 tax year. Under Proposition 30, the personal income tax increases were set to expire at the end of the 2018 tax year. However, the California Tax Extension to Fund Education and Healthcare Initiative ("Proposition 55"), approved by voters on November 8, 2016, extends by twelve years the temporary personal income tax increases on incomes over $250,000 that was first enacted by Proposition 30; Proposition 55 did not extend the sales tax increases imposed by Proposition 30. Revenues from the tax increase will be allocated to school districts and community colleges in the State.

Applications of Constitutional and Statutory Provisions

The application of Proposition 98 and other statutory regulations has become increasingly difficult to predict accurately in recent years. For a discussion of how the provisions of Proposition 98 have been applied to school funding see "FINANCIAL AND OPERATING INFORMATION - State Funding of Education; State Budget Process."

Proposition 2

Proposition 2, which included certain constitutional amendments to the Rainy Day Fund and, upon its approval, triggered the implementation of certain provisions which could limit the amount of reserves that may be maintained by a school district, was approved by the voters in the November 2014 election.

Rainy Day Fund The Proposition 2 constitutional amendments related to the Rainy Day Fund (i) require deposits into the Rainy Day Fund whenever capital gains revenues rise to more than 8% of general fund tax revenues; (ii) set the maximum size of the Rainy Day Fund at 10% of general fund revenues; (iii) for the next 15 years, require half of each year's deposit to be used for supplemental payments to pay down the budgetary debts or other long-term liabilities and, thereafter, require at least half of each year's deposit to be saved and the remainder used for supplemental debt payments or savings; (iv) allow the withdrawal of funds only for a disaster or if spending remains at or below the highest level of spending from the past three years; (v) require the State to provide a multiyear budget forecast; and (vi) create a Proposition 98 reserve (the "Public School System Stabilization Account") to set aside funds in good years to minimize future cuts and smooth school spending. The State may deposit amounts into such account only after it has paid all amounts owing to school districts relating to the

A-38 Proposition 98 maintenance factor for fiscal years prior to fiscal year 2014-15. The State, in addition, may not transfer funds to the Public School System Stabilization Account unless the State is in a Test I year under Proposition 98 or in any year in which a maintenance factor is created.

SB 858 Senate Bill 858 ("SB 858") became effective upon the passage of Proposition 2. SB 858 includes provisions which could limit the amount of reserves that may be maintained by a school district in certain circumstances. Under SB 858, in any fiscal year immediately following a fiscal year in which the State has made a transfer into the Public School System Stabilization Account, any adopted or revised budget by a school district would need to contain a combined unassigned and assigned ending fund balance that (a) for school districts with an A.D.A. of less than 400,000 students, is not more than two times the amount of the reserve for economic uncertainties mandated by the State Education Code, or (b) for school districts with an AD.A. that is more than 400,000 students, is not more than three times the amount of the reserve for economic uncertainties mandated by the State Education Code. In certain cases, the county superintendent of schools may grant a school district a waiver from this limitation on reserves for up to two consecutive years within a three-year period if there are certain extraordinary fiscal circumstances.

The District, which has an AD.A. of less than 400,000 students, is required to maintain a reserve for economic uncertainty in an amount equal to 3% of its general fund expenditures and other financing uses.

SB 751. Senate Bill 751 ("SB 751"), enacted on October 11, 2017, alters the reserve requirements imposed by SB 858. Under SB 751, in a fiscal year immediately after a fiscal year in which the amount of moneys in the Public School System Stabilization Account is equal to or exceeds 3% of the combined total general fund revenues appropriated for school districts and allocated local proceeds of taxes for that fiscal year, a school district budget that is adopted or revised cannot have an assigned or unassigned ending fund balance that exceeds 10% of those funds. SB 751 excludes from the requirements of those provisions basic aid school districts (also known as community funded districts) and small school districts having fewer than 2,501 units of average daily attendance.

The Bonds are payable from ad valorem taxes to be levied within the District pursuant to the State Constitution and other State law. Accordingly, the District does not expect SB 858 or SB 751 to adversely affect its ability to pay the principal of and interest on the Bonds as and when due.

Future Initiatives

Article XIIIA, Article XIIIB, Article XIIIC, Article XIIID, as well as Propositions 2, 30, 55, 62, 98, 111 and 218, were each adopted as measures that qualified for the ballot pursuant to the State's initiative process. From time to time other initiative measures could be adopted, further affecting District revenues or the District's ability to expend revenues.

A-39 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIXB

AUDITED TINANCIAL STATEMENTS OF THE DISTRICT FOR THE TISCAL YEAR ENDED JUNE 30, 2017 (THIS PAGE INTENTIONALLY LEFT BLANK) GROSSMONT UNION HIGH SCHOOL DISTRICT EL CAJON, CALIFORNIA AUDIT REPORT For the Fiscal Year Ended June 30, 2017 (This page intentionally left blank) GROSSMONT UNION HIGH SCHOOL DISTRICT For the Fiscal Year Ended June 30, 2017 Table a/Contents

FINANCIAL SECTION

Independent Auditors' Report ...... 1 Management's Discussion and Analysis ...... 3 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Position ...... 13 Statement of Activities ...... 14 Governmental Funds Financial Statements: Balance Sheet ...... 15 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position ...... 16 Statement of Revenues, Expenditures, and Changes in Fund Balances ...... 17 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities ...... 18 Proprietary Fund Financial Statements: Statement of Net Position ...... 19 Statement of Revenues, Expenses, and Changes in Net Position ...... 20 Statement of Cash Flows ...... 21 Fiduciary Funds Financial Statements: Statement of Fiduciary Net Position ...... 22 Statement of Changes in Fiduciary Net Position ...... 23 Notes to Financial Statements ...... 24

REQUIRED SUPPLEMENTARY INFORMATION

Budgetary Comparison Schedule - General Fund ...... 52 Schedule of Funding Progress ...... 53 Schedule of Proportionate Share of the Net Pension Liability ...... 54 Schedule of Pension Contributions ...... 55 Notes to the Required Supplementary Information ...... 56

SUPPLEMENTARY INFORMATION

Local Educational Agency Organization Structure ...... 59 Combining Balance Sheet - Non-Major Governmental Funds ...... 60 Combining Statement of Revenues, Expenditures, and Changes in Fund Balance - Non-Major Governmental Funds ...... 61 Statement of Changes in Assets and Liabilities - Agency Funds ...... 62 Budgetary Comparison Schedule -Adult Education Fund ...... 63 Budgetary Comparison Schedule - Cafeteria Fund ...... 64 Budgetary Comparison Schedule - Building Fund ...... 65 Budgetary Comparison Schedule - Capital Facilities Fund ...... 66 Budgetary Comparison Schedule- County School Facilities Fund ...... 67 Budgetary Comparison Schedule - Special Reserve for Capital Outlay Fund...... 68 Budgetary Comparison Schedule - Bond Interest and Redemption Fund ...... 69 Budgetary Comparison Schedule - Internal Service Fund...... 70 GROSSMONT UNION HIGH SCHOOL DISTRICT For the Fiscal Year Ended June 30, 2017 Table a/Contents

SUPPLEMENTARY INFORMATION (continued)

Schedule of Average Daily Attendance ...... 71 Schedule of Instructional Time ...... 72 Schedule of Financial Trends and Analysis ...... 73 Reconciliation of Annual Financial and Budget Report with Audited Financial Statements ...... 7 4 Schedule of Expenditures of Federal Awards ...... 75 Schedule of Charter Schools ...... 76 Note to the Supplementary lnformation ...... 77

OTHER INDEPENDENT AUDITORS' REPORTS

Independent Auditors' Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards ...... 79 Independent Auditors' Report on State Compliance ...... 81 Independent Auditors' Report on Compliance For Each Major Federal Program and Report on Internal Control Over Compliance Required by the Uniform Guidance ...... 83

FINDINGS AND QUESTIONED COSTS

Schedule of Audit Findings and Questioned Costs: Summary of Auditors' Results ...... 85 Current Year Audit Findings and Questioned Costs ...... 86 Summary Schedule of Prior Audit Findings ...... 89 Management Letter ...... 90 Financial Section (This page intentionally left blank) INDEPENDENT AUDITORS' REPORT

Governing Board Grossmont Union High School District El Cajon, California

Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Grossmont Union High School District, as of and for the fiscal year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the District's basic financial statements as listed in the table of contents.

Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, and the 2016-17 Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of Grossmont Union High School District, as of June 30, 2017, and the respective changes in financial position and, where applicable, cash flows thereof for the fiscal year then ended in accordance with accounting principles generally accepted in the United States of America.

1 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 3 through 12, budgetary comparison information on page 52, schedule of funding progress on page 53, schedule of proportionate share of the net pension liability on page 54, and schedule of pension contributions on page SS be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the District's basic financial statements. The supplementary information is presented for purposes of additional analysis and is not a required part of the basic financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is also not a required part of the basic financial statements. The supplementary information on pages 60 to 74 and the schedule of expenditures of federal awards on page 75 are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements as a whole. The information on pages 59 and 76 has not been subjected to the auditing procedures applied in the audit of the basic financial statements and accordingly, we do not express an opinion or provide any assurance on it.

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 20, 2017, on our consideration of the District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District's internal control over financial reporting and compliance.

Murrieta, California November 20, 2017

2 GROSSMONT UNION HIGH SCHOOL DISTRICT Management's Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2017

This discussion and analysis of Grossmont Union High School District's financial performance provides an overview of the District's financial activities for the fiscal year ended June 30, 2017. Please read it in conjunction with the District's financial statements, which immediately follow this section.

FINANCIAL HIGHLIGHTS

• The District's financial status declined as a result of this year's operations. Net position of governmental activities decreased by $16.9 million, or 14.1 %. • Governmental expenses were about $293.9 million. Revenues were about $277.0 million. • The District acquired approximately $34.4 million in new capital assets during the year. See Note 9, Construction in Progress and Capital Assets Being Depreciated. These expenditures were incurred primarily from the Building Fund. • The District increased its outstanding long-term debt by $76.3 million. This was primarily due to an increase in general obligation bonds. • Grades 9-12 average daily attendance (ADA) decreased by 170, or 1.1 %.

OVERVIEW OF THE FINANCIAL STATEMENTS

This annual report consists of three parts - management discussion and analysis (this section), the basic financial statements, and required supplementary information. The basic financial statements include two kinds of statements that present different views of the District:

• The first two statements are district-wide financial statements that provide both short-term and long-term information about the District's overall financial status. • The remaining statements are Jund financial statements that focus on individual parts of the District, reporting the District's operations in more detail than the district-wide statements. • The governmental funds statements tell how basic services like regular and special education were financed in the short term as well as what remains for future spending. • Short and long-term financial information about the activities of the District that operate like businesses (self-insurance funds) are provided in the proprietary funds statements. • Fiduciary funds statement provides information about the financial relationships in which the District acts solely as a trustee or agent for the benefit of others to whom the resources belong.

Figure A-1. Organization of Grossmont Union High School District's Annual Financial Report I------1 ------I The financial statements also •' !' '1 include notes that explain Management's Basic Required some of the information in Discussion Financial Supplementary the statements and provide and Analysis Information Information more detailed data. Figure A-1 shows how the various parts of this annual report are arranged and related to District-Wide Fund Notes to one another. Financial Financial Financial Statements Statements Statements

SUMMARY DETAIL 3 GROSSMONT UNION HIGH SCHOOL DISTRICT Management's Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2017

OVERVIEW OF THE FINANCIAL STATEMENTS (continued)

Figure A-2 summarizes the major features of the District's financial statements, including the portion of the District's activities they cover and the types of information they contain.

Figure A-2. Major Features of the District-Wide and Fund Financial Statements

Type of Statements District-Wide Governmental Funds Proprietary Funds Fiduciary Funds Scope Entire District, except The activities of the Activities of the District Instances in which the fiduciary activities District that are not that operate like a District administers proprietary or business, such as self- resources on behalf of fiduciary, such as insurance funds someone else, such as special education and scholarship programs building maintenance and student activities monies Required • Statement of Net • Balance Sheet • Statement of Net • Statement of financial Position Position Fiduciary Net statements • Statement of Position • Statement of Revenues, • Statement of Activities Expenditures & Revenues, Expenses, • Statement of Changes in Fund & Changes in Net Changes in Balances Position Fiduciary Net Position • Statement of Cash Flows Accounting Accrual accounting Modified accrual Accrual accounting and Accrual accounting and basis and and economic accounting and economic resources economic resources measurement resources focus current financial focus focus focus resources focus Type of All assets and Only assets expected All assets and liabilities, All assets and asset/liability liabilities, both to be used up and both short-term and liabilities, both short- information financial and capital, liabilities that come long-term; The term and long-term; short-term and long- due during the year or District's funds do not The District's funds do term soon thereafter; no currently contain not currently contain capital assets included nonfinancial assets, nonfinancial assets, though they can though they can

Type of All revenues and Revenues for which All revenues and All revenues and inflow/outflow expenses during year, cash is received during expenses during the expenses during the information regardless of when or soon after the end year, regardless of year, regardless of cash is received or of the year; when cash is received when cash is received paid expenditures when or paid or paid goods or services have been received and payment is due during the year or soon thereafter

The remainder of this overview section of management's discussion and analysis highlights the structure and contents of each of the statements. GROSSMONT UNION HIGH SCHOOL DISTRICT Management's Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2017

OVERVIEW OF THE FINANCIAL STATEMENTS (continued)

District-Wide Statements The district-wide statements report information about the District as a whole using accounting methods similar to those used by private-sector companies. The statement of net position includes all of the District's assets and liabilities. All of the current year's revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid.

The two district-wide statements report the District's net position and how it has changed. Net position - the difference between the District's assets and deferred outflows of resources and liabilities and deferred inflows of resources - is one way to measure the District's financial health, or position.

• Over time, increases and decreases in the District's net position are an indicator of whether its financial position is improving or deteriorating, respectively. • To assess the overall health of the District, you need to consider additional nonfinancial factors such as changes in the District's demographics and the condition of school buildings and other facilities. • In the district-wide financial statements, the District's activities are categorized as Governmental Activities. Most of the District's basic services are included here, such as regular and special education, transportation, and administration. Property taxes and state aid finance most of these activities.

Fund Financial Statements The fund financial statements provide more detailed information about the District's most significant funds - not the District as a whole. Funds are accounting devices the District uses to keep track of specific sources of funding and spending on particular programs:

• Some funds are required by State law and by bond covenants. • The District establishes other funds to control and manage money for particular purposes (like repaying its long-term debt) or to show that it is properly using certain revenues.

The District has three kinds of funds:

1) Governmental funds - Most of the District's basic services are included in governmental funds, which generally focus on (1) how cash and other financial assets that can readily be converted to cash flow in and out and (2) the balances left at year-end that are available for spending. Consequently, the governmental funds statements provide a detailed short-term view that helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the District's programs. Because this information does not encompass the additional long-term focus of the district­ wide statements, we provide additional information on a separate reconciliation page that explains the relationship (or differences) between them.

2) Proprietary funds - When the District charges other District funds for the services it provides, these services are reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the Statement of Net Position and Statement of Activities. In fact, the District's internal service funds are included within the governmental activities reported in the district-wide statements but provide more detail and additional information, such as cash flows. The District uses the internal service funds to report activities that relate to the District's self-insured program for health and welfare benefits and for other postemployment benefits. The Enterprise Fund, which reports the activity of the Food Services Fund, is reported in the business-type activities column. GROSSMONT UNION HIGH SCHOOL DISTRICT Management's Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2017

OVERVIEW OF THE FINANCIAL STATEMENTS (continued)

Fund Financial Statements (continued)

3) Fiduciary funds - The District is the trustee, or fiduciary, for assets that belong to others, such as the student activities funds and retiree benefits fund. The District is responsible for ensuring that the assets reported in these funds are used only for their intended purposes and by those to whom the assets belong. All of the District's fiduciary activities are reported in a separate statement of fiduciary net position. We exclude these activities from the district-wide financial statements because the District cannot use these assets to finance its operations.

FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE

Net Position. The District's combined net position was lower on June 30, 2017, than it was the year before - decreasing 14.1 % to $103.0 million (See Table A-1 ).

Table A-1: Statement of Net Position Governmental Activities 2017 2016 Net Change Assets Current assets $ 215,897,027 $ 174,039,494 $ 41,857,533 Capital assets 745,819,684 736,848,995 8,970,689 Total assets 961,716,711 910,888,489 50,828,222 Deferred outflows of resources 76,690,303 43,130,165 33,560,138 Liabilities Current liabilities 29,815,557 32,777,674 (2,962,117) Long-term liabilities 675,534,288 599,185,291 76,348,997 Net pension liability 207,770,304 173,952,426 33,817,878 Total liabilities 913,120,149 805,915,391 107,204, 758 Deferred inflows of resources 22,288,182 28,151,041 (5,862,859) Net position Net investment in capital assets 256,178,711 250,407,699 5,771,012 Restricted 74,526,589 74,712,731 (186,142) Unrestricted (227,706,617) (205,168,208) (22,538,409) Total net position $ 102,998,683 $ 119,952,222 $ (16,953,539)

Changes in net position, governmental activities. The District's total revenues decreased 8.5% to $277.0 million (See Table A-2). The decrease is due primarily to federal and state aid.

The total cost of all programs and services increased 11.5°/o to $293.9 million. The District's expenses are predominantly related to educating and caring for students, 67.7°/o. The purely administrative activities of the District accounted for just 5.9°/o of total costs. A significant contributor to the increase in costs was due to an increase in compensation for district personnel. GROSSMONT UNION HIGH SCHOOL DISTRICT Management's Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2017

FINANCIAL ANALYSIS OF THE DISTRICT AS A WHOLE (continued)

Table A-2: Statement of Activities Governmental Activities 2017 2016 Net Chan!le Revenues Program Revenues: Charges for services $ 2,760,915 $ 3,758,993 $ (998,078) Operating grants and contributions 59,725,937 56,575,758 3,150,179 Capital grants and contributions 227,263 24,567,915 (24,340,652) General Revenues: Federal and state aid not restricted 65,340,474 77,119,723 (11, 779,249) Property taxes 132,480,642 123, 754,981 8,725,661 Other general revenues 16,427,105 16,775,603 (348,498) Total Revenues 276,962,336 302,552,973 (25,590,637) Expenses Instruction-related 171,333,417 160,466,363 10,867,054 Pupil services 27,977,601 27,262,545 715,056 Administration 17,286,857 14,483,809 2,803,048 Plant services 25,391,465 24,094,453 1,297,012 All other activities 51,926,535 37,401,277 14,525,258 Total Expenses 293,915,875 263,708,447 30,207,428 Increase (decrease) in net position $ (16,953,539) $ 38,844,526 $ (55, 798,065)

FINANCIAL ANALYSIS OF THE DISTRICT'S FUNDS

The financial performance of the District as a whole is reflected in its governmental funds as well. As the District completed this year, its General Fund reported a fund balance of $23.6 million, which is above last year's ending fund balance of $22.3 million. The primary cause of the increased fund balance was the receipt ofone-time funding in the 2016-17 State budget. The Building Fund reported a fund balance of $92.8 million, which is above last year's ending fund balance of $46.5 million. The primary cause of the increased fund balance is due to issuance of general obligation bonds.

The Bond Interest and Redemption Fund reported a fund balance of $40.4 million which is above last year's ending fund balance of $34.6 million due to an increase in bond indebtedness and collection activity.

The Non-Major Governmental Funds reported a fund balance of $28.0 million, which is below last year's ending fund balance of $38.9 million due to expenditure of County School Facilities funds. GROSSMONT UNION HIGH SCHOOL DISTRICT Management's Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2017

FINANCIAL ANALYSIS OF THE DISTRICT'S FUNDS

Table A-3: The District's Fund Balances Fund Balances Other Sources !ul;i:: 1, 2016 Revenues Exeenditures and (Uses) !une 30, 2017 Fund General Fund $ 22,288,321 $ 216,491,900 $ 215,248,564 $ 63,335 $ 23,594,992 Adult Education Fund 777,624 16,527,786 15,864,413 1,440,997 Cafeteria Fund 2,332,951 7,969,833 8,007,341 2,295,443 Special Reserve Fund (Other Than Capital Outlay) 872,769 8,968 881,737 Building Fund 46,519,565 703,446 15,747,390 61,310,000 92,785,621 Capital Facilities Fund 3,128,837 861,145 173,824 3,816,158 County School Facilities Fund 28,878,684 227,263 12,756,748 16,349,199 Special Reserve Fund (Capital Outlay) 3,751,228 4,724,931 4,311,551 (63,335) 4,101,273 Bond Interest and Redemption Fund 34,579,157 29,247,991 29,078,388 5,674,246 40,423,006 $ 143,129,136 $ 276,763,263 $ 301,188,219 $ 66,984,246 $ 185,688,426

General Fund Budgetary Highlights Over the course of the year, the District revised the annual operating budget several times. The major budget amendments fall into these categories:

• Salaries and benefits costs - increased $2.4 million due to negotiated increases with district personnel. • Other non-personnel expenses - increased $4.8 million to re-budget carryover funds and revise operational cost estimates.

While the District's final budget for the General Fund anticipated that revenues would fall short of expenditures by about $1. 7 million, the actual results for the year show that revenues exceeded expenditures by roughly $727,800. Actual revenues were $1.0 million more than anticipated, and expenditures were $1.5 million less than budgeted. That amount consists primarily of restricted categorical program dollars that were not spent as of June 30, 2017, that will be carried over into the 2017-18 budget.

CAPITAL ASSET AND DEBT ADMINISTRATION

Capital Assets By the end of 2016-17 the District had invested $34.4 million in new capital assets, related to the District's ongoing modernization program. (More detailed information about capital assets can be found in Note 9 to the financial statements). Total depreciation expense for the year was $25.3 million.

Table A-4: Capital Assets at Year End, net of Depreciation

Governmental Activities 2017 2016 Net Change Land $ 39,069,840 $ 39,069,840 $ Improvement of sites 76,656,765 83,331,308 (6,674,543) Buildings 467,137,746 471,111,028 (3,973,282) Equipment 8,015,303 8,712,512 (697,209) Construction in progress 154,940,030 134,624,307 20,315,723 Total $ 745,819,684 $ 736,848,995 $ 8,970,689 GROSSMONT UNION HIGH SCHOOL DISTRICT Management's Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2017

CAPITAL ASSET AND DEBT ADMINISTRATION (continued)

Long-Term Debt At year-end the District had $675.5 million in general obligation bonds, capital leases, pension liabilities, and employment benefits - an increase of 12. 7% from last year - as shown in Table A-5. (More detailed information about the District's long-term liabilities is presented in Note 10 to the financial statements).

Table A-5: Outstanding Long-Term Debt at Year-End

Governmental Activities 2017 2016 NetChan!le General obligation bonds $ 647,520,486 $ 573,658,766 $ 73,861,720 Capital leases 331,020 571,560 (240,540) Compensated absences 2,922,639 2,997,016 (74,377) Other postemployment benefits 24,760,143 21,957,949 2,802,194 Total $ 675,534,288 $ 599,185,291 $ 76,348,997

FACTORS BEARING ON THE DISTRICT'S FUTURE

The Governor signed the 2017-18 Budget Act and other budget-related bills on June 27, 2017.

Proposition 98

Overview

State budgeting for schools and community colleges is based primarily on Proposition 98, approved by voters in 1988 and amended in 1990. In this section, we provide an overview of Proposition 98 changes under the enacted budget package.

Proposition 98 Establishes Minimum Spending Level Proposition 98 establishes a minimum spending requirement commonly called the minimum guarantee. The minimum guarantee is determined by three main formulas (known as tests) and various inputs, including General Fund revenue, per capita personal income, and K-12 attendance. The state can spend at the minimum guarantee or any level above it. Spending above the minimum guarantee one year typically becomes part of the base for calculating the minimum guarantee the next year. If the minimum guarantee increases after budget enactment due to updated inputs, the state owes a "settle-up" obligation. In some years, the state also creates or pays "maintenance factor." Maintenance factor is created when General Fund revenue is weak relative to per capita personal income and is paid when General Fund revenue is stronger. GROSSMONT UNION HIGH SCHOOL DISTRICT Management's Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2017

FACTORS BEARING ON THE DISTRICT'S FUTURE (continued)

Proposition 98 (continued)

Overview ( continued)

2015-16 and 2016-17 Minimum Guarantees Down but Total Spending Up Slightly The 2015-16 minimum guarantee has decreased $379 million due to lower-than-expected General Fund revenue. Proposition 98 spending that year, however, has increased $53 million due to various minor adjustments involving the Local Control Funding Formula (LCFF) and community college apportionments. The 2016-17 minimum guarantee has decreased $558 million, again due to lower estimates of General Fund revenue. Proposition 98 spending that year has decreased by $484 million, but total spending, including a settle-up payment of $514 million, is up slightly ($29 million) from the June 2016 level. The settle-up payment allows the state to cover some 2016-17 LCFF costs using funds set aside for Proposition 2 (2014) debt payments. In both 2015-16 and 2016-17, Proposition 98 spending is above the calculated minimum guarantees.

2017-18 Spending Up $3.1 Billion Over Revised 2016-17 Level In 2017-18, total spending across all segments is $74.5 billion, an increase of $3.1 billion (4.4 percent) from the revised 2016-17 level. For 2017-18, the state funds at the estimate of the minimum guarantee. This estimate builds upon the higher levels of spending provided in 2015-16 and 2016-17. (Had the state not funded above the guarantee in those two years, the 2017-18 guarantee would have been $542 million lower.) Test 2 is the operative test in 2017-18, with the change in the guarantee attributable to a 3.7 percent increase in per capita personal income and a 0.05 percent decline in K-12 attendance. The increase in the guarantee also reflects a maintenance factor payment of $536 million. Under the administration's estimates, the state would end 2017-18 with an outstanding maintenance factor obligation of $900 million.

About One-Third ofIncrease Covered With Higher Property Tax Revenue Of the total Proposition 98 spending provided in 2017-18, $52.6 billion is state General Fund and $21.9 billion is local property tax revenue. From 2016-17 to 2017-18, state General Fund increases $2.1 billion (accounting for about two-thirds of the $3.1 billion increase in spending) and property tax revenue increases by $1 billion. The primary factor explaining the growth in property tax revenue is the projected 5.3 percent growth in assessed property values, which is similar to the average growth rate over the past 20 years. Regarding local revenue associated with the dissolution of redevelopment agencies, the budget plan assumes a net increase of $31 million. This consists of a $131 million increase in the ongoing revenue shifted to schools and community colleges, offset by a $100 million decrease in revenue from the sale of assets formerly owned by redevelopment agencies.

Spending Package Reduces Outstanding Settle-Up Obligation by $603 Million The budget plan includes a $603 million settle-up payment related to meeting the 2009-10 minimum guarantee. This payment reduces the state's outstanding settle-up obligation from slightly above $1 billion to $440 million. Of the $603 million provided, the budget plan allocates $514 million for covering 2016-17 LCFF costs, $86 million for the community college guided pathways initiative, and $3 million for the Career Technical Education Incentive Grant program. The state budget package scores all of the settle-up spending as a Proposition 2 debt payment. GROSSMONT UNION HIGH SCHOOL DISTRICT Management's Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2017

FACTORS BEARING ON THE DISTRICT'S FUTURE (continued)

Proposition 98 (continued)

K-12 Education

$64.7 Billion Proposition 98 Funding for K-12 Education in 2017-18 The budgeted 2017-18 level is $2. 7 billion ( 4.3 percent) more than revised 2016-17 level and $2.2 billion (3.6 percent) more than the 2016-17 Budget Act level. The budget increases funding per student by $450 (4.3 percent) over the 2016-17 Budget Act level, bringing Proposition 98 funding per student up to $10,863.

Package Includes Mix of Ongoing and One-Time Spending The budget includes $2.4 billion in augmentations for K-12 education. Of these augmentations, $1.5 billion are ongoing increases and $933 million are one-time initiatives. In addition to these changes, the budget package includes $328 million in one-time initiatives funded from other sources. (Of this amount, $325 million is from Proposition 98 reversion dollars and $3 million is from a settle-up payment. Of the reversion dollars, $114 million is for a fund swap primarily relating to special education.) The budget also authorizes $593 million from Proposition 51 (2016) general obligation bond proceeds for school facilities.

General Purpose Funding

Accelerates Implementation of LCFF for School Districts and Charter Schools The budget provides an additional $1.4 billion ongoing Proposition 98 funding for this purpose, bringing total LCFF funding for school districts and charter schools to $57.4 billion, a 2.7% increase over the revised 2016- 17 level. The administration estimates this funding will result in the LCFF-target level being 97 percent­ funded. School districts and charter schools may use LCFF monies for any educational purpose.

Funds One-Time Discretionary Grants The largest one-time augmentation for K-12 education is $877 million that local education agencies (LEAs) may use for any educational purpose. Funding is distributed based on average daily attendance ($147 per ADA). If an LEA has unpaid mandate claims, funding counts toward those claims. As most LEAs do not have any such claims, we estimate only about one-third ($268 million) of the funding will end up reducing the K-12 mandates backlog. We estimate the K-12 mandates backlog will be $799 million at the end of 2017-18.

Other Changes

Specifies Use ofRemaining Proposition 39 Funds and Extends Energy-Efficiency Programs Indefinitely The budget provides $423 million Proposition 98 funding for energy-efficiency projects at schools and community colleges. This reflects the fifth and final year of Proposition 39 (2012) funding. Trailer legislation, however, extends the date for schools to use this funding by one year, to June 30, 2019, and sets rules for how any remaining uncommitted funds are to be used. The first $75 million in remaining funds is earmarked for school districts and CO Es to replace or retrofit school buses. Priority is given to LEAs having the oldest buses, serving disadvantaged communities, or serving high shares of low-income students. The next $100 million is earmarked for a competitive grant program to provide K-12 LEAs with low- and no-interest loans for energy projects. Any funding still remaining is to be distributed as grants to K-12 LEAs according to Proposition 39 rules. The trailer legislation also extends the Proposition 39 energy-efficiency programs for K-12 and CCC LEAs beginning in 2018-19, contingent upon funds being made available through the annual budget act or other statute. GROSSMONT UNION HIGH SCHOOL DISTRICT Management's Discussion and Analysis (Unaudited) For the Fiscal Year Ended June 30, 2017

FACTORS BEARING ON THE DISTRICT'S FUTURE (continued)

Proposition 98 (continued)

Other Changes (continued)

Augments After School Education and Safety (ASES) Program Proposition 49, passed by the voters in 2002, requires the state to provide $550 million in Proposition 98 funds annually for the ASES program. Since Proposition 49 was enacted, ASES providers have received $7.50 per child per day. The budget increases ASES funding by $50 million (9%)-bringing total funding to $600 million. The augmentation will increase the per-child per-day rate.

School Facilities

Provides First Installment of Proposition 51 Bond Funding for School Facilities Passed by the voters in November 2016, Proposition 51 authorizes the state to sell $9 billion in general obligation bonds-$7 billion for schools and $2 billion for community colleges. The state plans to issue $593 million of these bonds for K-12 facility projects in 2017-18. This would fully fund the state's list of $368 million in already approved facility projects, as well as $225 million in additional projects.

Establishes New Audit Rules Trailer legislation shifts audit responsibilities for state-funded school facility projects from the Office of Public School Construction to local independent auditors. Moving forward, the local auditors are to review facility expenditures to ensure that they comply with the rules of the state's School Facilities Program. In June 2017, the State Allocation Board also enacted a regulatory change requiring districts to sign grant agreements prior to receiving state funding that specify allowable project expenditures.

All of these factors were considered in preparing the Grossmont Union High School District budget for the 2017-18 fiscal year.

CONTACTING THE DISTRICT'S FINANCIAL MANAGEMENT

This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the District's finances and to demonstrate the District's accountability for the money it receives. If you have any questions about this report or need additional financial information, contact the District's Business Office at (619) 644-8000 or by mail at 1100 Murray Drive, El Cajon, CA 92020. GROSSMONT UNION HIGH SCHOOL DISTRICT Statement of Net Position June 30, 2017

Governmental Activities ASSETS Cash $ 203,808,780 Accounts receivable 9,576,388 Prepaid expenses 1,900,737 Inventories 234,567 Other current assets 376,555 Capital assets: Non-depreciable capital assets 194,009,870 Depreciable capital assets 813,615,228 Less accumulated depreciation [261,805,414) Total assets 961,716,711

DEFERRED OUTFLOWS OF RESOURCES Deferred amounts on refunding 27,250,471 Deferred outflows related to pensions 49,439,832 Total deferred outflows of resources 76,690,303

LIABILITIES Accounts payable 28,902,700 Unearned revenue 912,857 Long-term liabilities: Portion due or payable within one year 16,987,200 Portion due or payable after one year 658,547,088 Net pension liability 207,770,304 Total liabilities 913,120,149

DEFERRED INFLOWS OF RESOURCES Deferred inflows related to pensions 22,288,182

NET POSITION Net investment in capital assets 256,178, 711 Restricted for: Capital projects 24,266,630 Debt service 40,423,006 Categorical programs 9,836,953 Unrestricted [227, 706,617)

Total net position $ 102,998,683 GROSSMONT UNION HIGH SCHOOL DISTRICT Statement ofActivities For the Fiscal Year Ended June 30, 2017

Program Revenues Net Revenue (Expense) and Changes in Net Position Operating Capital Charges for Grants and Grants and Governmental Business-Type FunctionsLProB:rams Ex(!enses Services Contributions Contributions Activities Activities Total Governmental Activities: Instruction 137,709,163 56,517 32,190,681 227,263 (105,234,702) (105,234,702) Instruction-Related Services: Supervision of instruction 10,610,714 10,111 4,343,940 (6,256,663) (6,256,663) Instructional library, media and technology 3,018,815 92,249 (2,926,566) (2,926,566) School site administration 19,994,725 37,324 5,518,009 (14,439,392) (14,439,392) Pupil Support Services: Home-to-school transportation 6,916,198 (6,192) 1,426,954 (5,495,436) (5,495,436) Food services 6,995,059 2,001,206 5,050,758 56,905 56,905 All other pupil services 14,066,344 3,474 2,912,899 (11,149,971) (11,149,971) General Administration Services: Data processing services 4,904,565 ( 4, 904,565) ( 4, 904,565) Other general administration 12,382,292 9,432 1,654,725 (10,718,135) (10,718,135) Plant services 25,391,465 650,122 6,411,678 (18,329,665) (18,329,665) Ancillary services 1,537,181 12,471 (1,524,710) (1,524,710) Community services 451,596 9 (451,587) (451,587) Interest on long-term debt 22,566,878 (22,566,878) (22,566,878) Other outgo 2,066,286 (1,079) 111,564 (1,955,801) (1,955,801) Depreciation (unallocated) 25,304,594 (25,304,594) (25,304,594) Total Governmental Activities 293,915,875 2,760,915 59,725,937 227,263 (231,201,760)

General Revenues: Property taxes 132,480,642 132,480,642 Federal and state aid not restricted to specific purpose 65,340,474 65,340,474 Interest and investment earnings 911,682 911,682 lnteragency revenues 7,614,284 7,614,284 Miscellaneous 7,901,139 7,901,139

Subtotal general revenues 214,248,221 214,248,221

Change in net position [16,953,539) [16,953,539)

Net position July 1, 2016, as originally stated 131,224,473 2,898,107 134,122,580

Adjustments for restatements [11,272,251) [2,898,107) [14,170,358)

Net position July 1, 2016 119,952,222 119,952,222

Net position June 30, 2017 102,998,683 102,998,683 GROSSMONT UNION HIGH SCHOOL DISTRICT Balance Sheet - Governmental Funds June 30, 2017

Bond Interest Non-Major Total General Building and Redemption Governmental Governmental Fund Fund Fund Funds Funds ASSETS Cash $ 28,986,367 $ 100,839,332 $ 40,423,006 $ 26,340,899 $ 196,589,604 Accounts receivable 6,696,223 307,571 2,336,079 9,339,873 Due from other funds 1,229,293 17,566 3,884,724 5,131,583 Inventories 128,257 106,310 234,567 Prepaid expenditures 1,677,525 3,194 1,680,719

Total Assets $ 38,717,665 $ 101,164,469 $ 40,423,006 $ 32,671,206 $ 212,976,346

LIABILITIES AND FUND BALANCES

Liabilities Accounts payable $ 12,116,132 $ 5,832,192 $ $ 3,271,107 $ 21,219,431 Due to other funds 1,412,751 2,546,656 1,196,225 5,155,632 Unearned revenue 712,053 200,804 912,857

Total Liabilities 14,240,936 8,378,848 4,668,136 27,287,920

Fund Balances Nonspendable 1,865,782 123,186 1,988,968 Restricted 6,222,699 92,785,621 40,423,006 23,778,611 163,209,937 Assigned 6,702,062 4,101,273 10,803,335 Unassigned 9,686,186 9,686,186 Total Fund Balances 24,476,729 92,785,621 40,423,006 28,003,070 185,688,426

Total Liabilities and Fund Balances $ 38,717,665 $ 101,164,469 $ 40,423,006 $ 32,671,206 $ 212,976,346 GROSSMONT UNION HIGH SCHOOL DISTRICT Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position June 30, 2017

Total fund balances - governmental funds $ 185,688,426

Amounts reported for governmental activities in the statement of net position are different because capital assets used for governmental activities are not financial resources and therefore are not reported as assets in governmental funds. The cost of the assets is $1,007,625,098, and the accumulated depreciation is ($261,805,414). 745,819,684

In governmental funds, interest on long-term debt is not recognized until the period in which it matures and is paid. In the government-wide statement of activities, it is recognized in the period that it is incurred. The additional liability for unmatured interest owing at the end of the period was: (7,050,731)

Deferred amounts on refunding represent amounts paid to an escrow agent in excess of the outstanding debt at the ti.me of the payment for refunded bonds which have been defeased. In the government-wide statements it is recognized as a deferred outflow. The remaining deferred amounts on refunding at the end of the period were: 27,250,470

In governmental funds, only current liabilities are reported. In the statement of net position, all liabilities, including long-term liabilities, are reported. Long-term liabilities relating to governmental activities consist of:

General obligation bonds 647,520,486 Capital leases payable 331,020 Compensated absences payable 2,922,639 Total (650,774,145)

The net pension liability is not due and payable in the current reporting period, and therefore is not reported as a liability in the fund financial statements. (207,770,304)

Internal service funds are used to conduct certain activities for which costs are charged to other funds on a full cost-recovery basis. Because internal service funds are presumed to operate for the benefit of governmental activities, assets and liabilities of internal service funds are reported with governmental activities in the statement of net position. Net position for internal service funds is: (17,316,367)

In governmental funds, deferred outflows and inflows of resources relating to pensions are not reported because they are applicable to future periods. In the statement of net position, deferred outflows and inflows of resources relating to pensions are reported. Deferred inflows and outflows relating to pensions for the period were:

Deferred outflows of resources 49,439,832 Deferred inflows of resources (22,288,182) Total 27,151,650

Total net position - governmental activities $ 102,998,683 GROSSMONT UNION HIGH SCHOOL DISTRICT Statement of Revenues, Expenditures, and Changes in Fund Balances - Governmental Funds For the Fiscal Year Ended June 30, 2017

Bond Interest Non-Major Total General Building and Redemption Governmental Governmental Fund Fund Fund Funds Funds REVENUES LCFF sources $ 158,305,393 $ $ $ $ 158,305,393 Federal sources 12,852, 722 1,170,126 8,209,284 22,232,132 Other state sources 21,044,009 295,783 12,920,682 34,260,474 Other local sources 24,298,744 703,446 27,782,082 9,180,992 61,965,264

Total Revenues 216,500,868 703,446 29,247,991 30,310,958 276,763,263 EXPENDITURES Current: Instruction 128,740,115 6,518,834 135,258,949 Instruction-Related Services: Supervision of instruction 8,572,533 1,865,695 10,438,228 Instructional libraiy, media and technology 2,827,406 2,827,406 School site administration 14,100,543 5,349,886 19,450,429 Pupil Support Services: Home-to-school transportation 6,742,302 6,742,302 Food services 4,558 7,165,842 7,170,400 All other pupil services 13,722,899 13,722,899 Ancillary services 1,578,318 1,578,318 Community services 460,301 460,301 General Administration Services: Data processing services 4,822,988 4,822,988 Other general administration 10,032,798 25,885 10,058,683 Transfers of indirect costs (1,085,865] 1,085,865 Plant services 22,628,546 947,787 2,158,124 25,734,457 Capital outlay 1,087,356 14,799,603 16,943,746 32,830,705 Intergovernmental transfers 327,682 327,682 Debt service: Issuance costs 434,516 1,303,338 1,737,854 Principal 240,540 13,393,408 13,633,948 Interest 11,028 14,381,642 14,392,670

Total Expenditures 215,248,564 15,747,390 29,078,388 41,113,877 301,188,219 Excess (Deficiency) of Revenues Over (Under) Expenditures 1,252,304 (15,043,944] 169,603 (10,802,919] (24,424,956]

OTHER FINANCING SOURCES (USES) Interfund transfers in 63,335 63,335 Interfund transfers out (63,335] (63,335] Proceeds from refunding bonds 90,435,000 90,435,000 Proceeds from general obligation bonds 61,310,000 61,310,000 Premium on bond issuances 8,295,550 8,295,550 Transfers to escrow agent for defeased debt (93,056,304] (93,056,304] Total Other Financing Sources and Uses 63,335 61,310,000 5,674,246 (63,335] 66,984,246

Net Change in Fund Balances 1,315,639 46,266,056 5,843,849 (10,866,254] 42,559,290

Fund Balances, July 1, 2016, as originally stated 23,161,090 46,519,565 34,579,157 36,536,373 140,796,185

Adjustments for Restatement - Cafeteria Fund 2,332,951 2,332,951

Fund Balances, July 1, 2016, as restated 23,161,090 46,519,565 34,579,157 38,869,324 143,129,136

Fund Balances, June 30, 2017 $ 24,476,729 $ 92,785,621 $ 40,423,006 $ 28,003,070 $ 185,688,426 GROSSMONT UNION HIGH SCHOOL DISTRICT Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement ofActivities For the Fiscal Year Ended June 30, 2017

Total net change in fund balances - governmental funds $ 42,559,290

Amounts reported for governmental activities in the statement of activities are different because:

Capital outlays are reported in governmental funds as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. The difference between capital outlay expenditures and depreciation expense for the period was: Expenditures for capital outlay 34,363,359 Depreciation expense (25,304,594) 9,058,765

In governmental funds, repayments of long-term debt are reported as expenditures. In the government­ wide statements, repayments of long-term debt are reported as a reduction of liabilities. Expenditures for repayment of the principal portion of long-term debt were: 93,633,948

In governmental funds, issuances of debt are recognized as other financing sources. In the government­ wide statements, issuances from debt are reported as increases to liabilities. Amounts recognized in governmental funds, net of issue premium were: (160,040,550)

Deferred amounts on refunding represent amounts paid to an escrow agent in excess of the outstanding debt at the time of the payment for refunded bonds which have been defeased. In governmental funds these charges are recognized as an expenditure. However, in the statement of activities these amounts are amortized over the shorter of the life of the refunded bonds or the refunding bonds. The difference between current year amounts and the current year amortization was: 10,588,352

In governmental funds, the entire proceeds from disposal of capital assets are reported as revenue. In the statement of activities, only the resulting gain or loss is reported. The difference between the proceeds from disposal of capital assets and the resulting gain or loss was: (88,076)

In governmental funds, accreted interest on capital appreciation bonds is not recorded as an expenditure from current resources. In the government-wide statement of activities, however, this is recorded as interest expense for the period. Accreted interest additions less accreted interest paid during the year was: (9,984,369)

In governmental funds, if debt is issued at a premium or at a discount, the premium or discount is recognized as an other financing source or an other financing use in the period it is incurred. In the government-wide statements, the premium or discount is amortized over the life of the debt. Amortization of premiums or discount for the period was: 2,769,791

In governmental funds, interest on long-term debt is recognized in the period that it becomes due. In the government-wide statement of activities, it is recognized in the period that it is incurred. Unmatured interest owing at the end of the period, less matured interest paid during the period but owing from the prior period, was: 1,524,562

In the statement of activities, compensated absences are measured by the amounts earned during the year. In the governmental funds, however, expenditures for these items are measured by the amount of financial resources used (essentially, the amounts actually paid). 74,377

The internal service fund is used by management to charge the cost of self-insurance activities. The net revenue (expense) of the internal service fund is reported with governmental activities. (2,066,394)

In government funds, pension costs are recognized when employer contributions are made in the statement of activities, pension costs are recognized on the accrual basis. This year, the difference between accrual-basis pension costs and actual employer contributions was: (4,983,235)

Change in net position of governmental activities $ (16,953,539) GROSSMONT UNION HIGH SCHOOL DISTRICT Statement of Net Position - Proprietary Funds June 30, 2017

Governmental Activities Internal Service Funds ASSETS Cash and cash equivalents $ 7,219,176 Accounts receivable 236,515 Due from other funds 23,299 Prepaid expenses 220,018 Other current assets 376,555

Total Assets 8,075,563

LIABILITIES Current Liabilities Accrued liabilities 631,787 Non-Current Liabilities Net OPEB liability 24,760,143

Total liabilities 25,391,930

NET POSITION Unrestricted $ (17,316,367) GROSSMONT UNION HIGH SCHOOL DISTRICT Statement of Revenues, Expenses, and Changes in Net Position - Proprietary Funds For the Fiscal Year Ended June 30, 2017

Governmental Activities Internal Service Funds

OPERATING REVENUES Charges to other funds $ 4,929,902 Other local revenues 104,468

Total operating revenues 5,034,370

OPERATING EXPENSES Services and other operating expenses 7,250,965

Operating Income (Loss) (2,216,595)

NON-OPERATING REVENUES Interest income 150,201

Change in net position (2,066,394)

Net position, July 1, 2016 (15,249,973)

Net position, June 30, 2017 $ (17,316,367) GROSSMONT UNION HIGH SCHOOL DISTRICT Statement a/Cash Flows- Proprietary Funds For the Fiscal Year Ended June 30, 2017

Governmental Activities Internal Service Funds CASH FLOWS FROM OPERATING ACTIVITIES Cash received from assessments made to other funds $ 5,659,728 Cash payments for payroll, insurance and operating costs (3,14 7,407)

Net cash provided (used) by operating activities 2,512,321

CASH FLOWS FROM INVESTING ACTIVITIES Interest received 150,201

Net increase (decrease) in cash and cash equivalents 2,662,522

Cash, July 1, 2016 4,556,654

Cash, June 30, 2017 $ 7,219,176

Reconciliation of operating income (loss) to net cash provided ( used) by operating activities: Operating income (loss) $ (2,216,595) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Changes in assets and liabilities: (Increase) decrease in accounts receivable (236,515) (Increase) decrease in due from other funds 1,238,428 (Increase) decrease in prepaid expenses 1,593,760 (Increase) decrease in other current assets (376,555) Increase (decrease) in accounts payable (136,363) Increase (decrease) in due to other funds (156,033) Increase (decrease) in OPEB liability 2,802,194

Net cash provided by operating activities $ 2,512,321 GROSSMONT UNION HIGH SCHOOL DISTRICT Statement of Fiduciary Net Position June 30, 2017

Trust Agency Fund Funds Private-Purpose Student Trust Fund Body Funds Assets Cash $ 600,104 $ 2,726,281 Accounts receivable 959 6,104 Total Assets 601,063 $ 2,732,385

Liabilities Accounts payable 4,000 $ 81,887 Other liabilities 44,040 Due to student groups 2,606,458 Total Liabilities 4,000 $ 2,732,385

Net Position Net position held in trust for other purposes $ 597,063 GROSSMONT UNION HIGH SCHOOL DISTRICT Statement a/Changes in Fiduciary Net Position For the Fiscal Year Ended June 30, 2017

Trust Fund Private-Purpose Trust Fund ADDITIONS Interest $ 9,215 Other local revenues 3,071 Total Additions 12,286

DEDUCTIONS Other trust activities 33,790 Change in net position (21,504)

Net position - July 1, 2016 618,567

Net position - June 30, 2017 $ 597,063 GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Grossmont Union High School District (the "District") accounts for its financial transactions in accordance with the policies and procedures of the California Department of Education's California School Accounting Manual. The accounting policies of the District conform to accounting principles generally accepted in the United States of America as prescribed by the Governmental Accounting Standards Board. The following is a summary of the more significant policies:

A. Reporting Entity A reporting entity is comprised of the primary government, component units, and other organizations that are included to ensure the financial statements are not misleading. The primary government of the District consists of all funds, departments, and agencies that are not legally separate from the District. For Grossmont Union High School District, this includes general operations, food service, and student related activities of the District.

Component units are legally separate organizations for which the District is financially accountable. Component units may also include organizations that are fiscally dependent on the District, in that the District approves their budget, the issuance of their debt or the levying of their taxes. In addition, component units are other legally separate organizations for which the District is not financially accountable but the nature and significance of the organization's relationship with the District is such that exclusion would cause the District's financial statements to be misleading or incomplete.

The District has identified no organizations that are required to be reported as component units.

B. Basis of Presentation, Basis of Accounting

1. Basis of Presentation

Government-Wide Financial Statements The statement of net position and the statement of activities display information about the primary government (the District) and its component units. These statements include the financial activities of the overall government, except for fiduciary activities. Eliminations have been made to minimize the double-counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other non exchange transactions.

The statement of activities presents a comparison between direct expenses and program revenues for each function of the District's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Program revenues include (a) fees, fines, and charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues.

Fund Financial Statements The fund financial statements provide information about the District's funds, including its fiduciary funds. Separate statements for each fund category - governmental, proprietary, and fiduciary - are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. All remaining governmental and enterprise funds are aggregated and reported as non-major funds. GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

B. Basis of Presentation, Basis of Accounting (continued)

1. Basis of Presentation ( continued)

Fund Financial Statements (continued) Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with the principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Non-operating revenues, such as subsidies and investment earnings, result from non-exchange transactions or ancillary activities.

Major Governmental Funds The District reports the following major governmental funds:

General Fund: This fund is used to account for and report all financial resources not accounted for and reported in another fund. The District also maintains a Special Reserve Fund for Other Than Capital Outlay Projects. This fund does not meet the definition of a special revenue fund as it is not primarily composed of restricted or committed revenue sources. Because this fund does not meet the definition of a special revenue fund under GASB No. 54, the activity of the fund is being reported within the General Fund.

Building Fund: This fund is used to account for the acquisition of major governmental capital facilities and buildings from the sale of general obligation bonds.

Bond Interest and Redemption Fund: This Fund is used to account for the accumulation of resources for, and the repayment of, District bonds, interest, and related costs.

Non-Major Governmental Funds The District reports the following non-major governmental funds:

Special Revenue Funds:

Adult Education Fund: This fund is used to account for resources committed to adult education programs maintained by the District.

Cafeteria Fund: This fund is used to account for revenues received and expenditures made to operate the District's food service operations.

Capital Projects Funds:

Capital Facilities Fund: This fund is used to account for resources received from developer impact fees assessed under provisions of the California Environmental Quality Act.

County School Facilities Fund: This fund is used to account for state apportionments provided for modernization of school facilities under SBSO.

Special Reserve Fund for Capital Outlay Projects: This fund is used to account for funds set aside for Board designated construction projects. GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

B. Basis of Presentation, Basis of Accounting (continued)

Proprietary Funds Proprietary fund reporting focuses on the determination of operating income, changes in net position, financial position, and cash flows. Proprietary funds are classified as enterprise or internal service. The District has the following proprietary fund:

Internal Service Funds: Internal service funds are created principally to render services to other organizational units of the District on a cost-reimbursement basis. These funds are designed to be self-supporting with the intent of full recovery of costs, including some measure of the cost of capital assets, through user fees and charges.

Self-Insurance Fund: This fund may be used to account for any activity for which goods or services are provided to other funds of the District in return for a fee to cover the cost of operations. The District operates self-insurance funds for its self-insured health and welfare benefits activity and to account for the other postemployment benefits.

Fiduciary Funds Fiduciary fund reporting focuses on net position and changes in net position. Fiduciary funds are used to report assets held in a trustee or agency capacity for others and therefore cannot be used to support the District's own programs. The fiduciary fund category includes pension (and other employee benefit) trust funds, investment trust funds, private-purpose trust funds, and agency funds. The District maintains the following fiduciary funds:

Foundation Private-Purpose Trust Fund: This fund is used to account separately for gifts or bequests per Education Code Section 41031 that benefit individuals, private organizations, or other governments and under which neither principal nor income may be used for purposes that support the District's own programs.

Agency Funds: The District maintains a separate agency fund for each school that operates an Associated Student Body (ASB) Fund, whether it is organized or not.

Student Body Fund: The Student Body Fund is an agency fund and, therefore, consists only of accounts such as cash and balancing liability accounts, such as due to student groups. The student body itself maintains its own general fund, which accounts for the transactions of that entity in raising and expending money to promote the general welfare, morale, and educational experiences of the student body (Education Code Sections 48930-48938). GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

B. Basis of Presentation, Basis of Accounting (continued)

2. Measurement Focus, Basis of Accounting

Government-Wide, Proprietary, and Fiduciary Fund Financial Statements The government-wide, proprietary, and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Non-exchange transactions, in which the District gives (or receives) value without directly receiving ( or giving) equal value in exchange, include property taxes, grants, entitlements, and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year in which all eligibility requirements have been satisfied.

Net position equals assets and deferred outflows of resources minus liabilities and deferred inflows of resources. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction or improvements of those assets. The net position should be reported as restricted when constraints placed on its use are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or imposed by law through constitutional provisions or enabling legislation. The net position restricted for other activities results from special revenue funds and the restrictions on their use.

Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the internal service fund are charges to other funds for self insurance costs. Operating expenses for internal service funds include the costs of insurance premiums and claims related to self-insurance.

Governmental Fund Financial Statements Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Issuances of general long-term debt and financing from capital leases are reported as other financing sources.

3. Revenues - Exchange and Non-Exchange Transactions Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the fiscal year in which the resources are measurable and become available. Available means that the resources will be collected within the current fiscal year. Generally, available is defined as collectible within 60 days. However, to achieve comparability of reporting among California districts and so as not to distort normal revenue patterns, with specific respect to reimbursement grants and corrections to state-aid apportionments, the California Department of Education has defined available for districts as collectible within one year. The following revenue sources are considered to be both measurable and available at fiscal year-end: State apportionments, interest, certain grants, and other local sources. GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

B. Basis of Presentation, Basis of Accounting (continued)

3. Revenues - Exchange and Non-Exchange Transactions (continued) Non-exchange transactions, in which the District receives value without directly giving equal value in return, include property taxes, certain grants, entitlements, and donations. Revenue from property taxes is recognized in the fiscal year in which the taxes are received. Revenue from certain grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements include time and purpose requirements. On a modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized.

C. Budgetary Data The budgetary process is prescribed by provisions of the California Education Code and requires the governing board to hold a public hearing and adopt an operating budget no later than July 1 of each year. The District governing board satisfied these requirements. The adopted budget is subject to amendment throughout the year to give consideration to unanticipated revenue and expenditures primarily resulting from events unknown at the time of budget adoption with the legal restriction that expenditures cannot exceed appropriations by major object account.

The amounts reported as the original budgeted amounts in the budgetary statements reflect the amounts when the original appropriations were adopted. The amounts reported as the final budgeted amounts in the budgetary statements reflect the amounts after all budget amendments have been accounted for. For budget purposes, on behalf payments have not been included as revenue and expenditures as required under generally accepted accounting principles.

D. Encumbrances Encumbrance accounting is used in all budgeted funds to reserve portions of applicable appropriations for which commitments have been made. Encumbrances are recorded for purchase orders, contracts, and other commitments when they are written. Encumbrances are liquidated when the commitments are paid. All encumbrances are liquidated as of June 30.

E. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, and Net Position

1. Cash and Cash Equivalents The District considers cash and cash equivalents to be cash on hand and demand deposits. In addition, because the Treasury Pool is sufficiently liquid to permit withdrawal of cash at any time without prior notice or penalty, equity in the pool is also deemed to be a cash equivalent.

2. Inventories and Prepaid Items Inventories are valued at cost using the first-in/first-out (FIFO) method. The costs of governmental fund-type inventories and prepaids are recorded as expenditures when consumed rather than when purchased.

Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items. GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

E. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, and Net Position ( continued)

3. Capital Assets Purchased or constructed capital assets are reported at cost or estimated historical cost. Donated capital assets, donated works of art and similar items, and capital assets received in a service concession arrangement are reported at acquisition value rather than fair value. The District maintains a capitalization threshold of $5,000. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized.

Capital assets are depreciated using the straight-line method over the following estimated useful lives: Description Estimated Lives Buildings and Improvements 5-50 years Furniture and Equipment 2-15 years Vehicles 8 years

4. Unearned Revenue Unearned revenue arises when potential revenue does not meet both the "measurable" and "available" criteria for recognition in the current period or when resources are received by the District prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the District has a legal claim to the resources, the liability for unearned revenue is removed from the combined balance sheet and revenue is recognized.

Certain grants received that have not met eligibility requirements are recorded as unearned revenue. On the governmental fund financial statements, receivables that will not be collected within the available period are also recorded as unearned revenue.

5. Deferred Outflows/Inflows of Resources In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period and so will not be recognized as an outflow of resources (expense/expenditure) until then. The District has two items that qualify for reporting in this category. The first item is related to its pension plans as more fully described in the footnote entitled "Pension Plans". The second is deferred amount on refunding, which resulted from the difference in the carrying value of refunded debt and its reacquisition price. This amount is shown as deferred and amortized over the shorter of the life of the refunded or refunding debt.

In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period and will not be recognized as an inflow of resources (revenue) until that time. The District has one item that qualifies for reporting in this category. That item is to recognize the District's proportionate share of the deferred inflows of resources related to its pension plans as more fully described in the footnote entitled "Pension Plans". GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

E. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, and Net Position ( continued)

6. Compensated Absences The liability for compensated absences reported in the government-wide statements consists of unpaid, accumulated vacation balances. The liability has been calculated using the vesting method, in which leave amounts for both employees who currently are eligible to receive termination payments and other employees who are expected to become eligible in the future to receive such payments upon termination are included.

7. Pensions For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the District"s California State Teachers Retirement System (CalSTRS) and California Public Employees" Retirement System (CalPERS) plans and addition to/deductions from the Plans" fiduciary net position have been determined on the same basis as they are reported by CalSTRS and CalPERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value.

8. Fund Balances The fund balance for governmental funds is reported in classifications based on the extent to which the government is bound to honor constraints on the specific purposes for which amounts in those funds can be spent.

Nonspendable: The nonspendable fund balance classification reflects amounts that are not in spendable form. Examples include inventory, prepaid items, the long-term portion of loans receivable, and nonfinancial assets held for resale. This classification also reflects amounts that are in spendable form but that are legally or contractually required to remain intact, such as the principal of a permanent endowment.

Restricted: The restricted fund balance classification reflects amounts subject to externally imposed and legally enforceable constraints. Such constraints may be imposed by creditors, grantors, contributors, or laws or regulations of other governments, or may be imposed by law through constitutional provisions or enabling legislation.

Committed: The committed fund balance classification reflects amounts subject to internal constraints selfimposed by formal action of the Governing Board. The constraints giving rise to committed fund balance must be imposed no later than the end of the reporting period. The actual amounts may be determined subsequent to that date but prior to the issuance of the financial statements. In contrast to restricted fund balance, committed fund balance may be redirected by the government to other purposes as long as the original constraints are removed or modified in the same manner, in which they were imposed, that is, by the same formal action of the Governing Board. The formal action required is a majority vote by the Governing Board on a resolution.

Assigned: The assigned fund balance classification reflects amounts that the government intends to be used for specific purposes. Assignments may be established either by the Governing Board or by a designee of the governing body, and are subject to neither the restricted nor committed levels of constraint. GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

E. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, and Net Position ( continued)

8. Fund Balances ( continued)

Assigned (continued): In contrast to the constraints giving rise to committed fund balance, constraints giving rise to assigned fund balance are not required to be imposed, modified, or removed by formal action of the Governing Board. The action does not require the same level of formality and may be delegated to another body or official. Additionally, the assignment need not be made before the end of the reporting period, but rather may be made any time prior to the issuance of the financial statements. The Governing Board assigned authorization to the Superintendent or the Superintendent's designee to classify components of ending fund balance as "assigned" when there is intent to spend the funds for a specific purpose.

Unassigned: In the General Fund only, the unassigned fund balance classification reflects the residual balance that has not been assigned to other funds and that is not restricted, committed, or assigned to specific purposes. However, deficits in any fund, including the General Fund that cannot be eliminated by reducing or eliminating amounts assigned to other purposes are reported as negative unassigned fund balance.

The District applies restricted resources first when expenditures are incurred for purposes for which either restricted or unrestricted ( committed, assigned and unassigned) amounts are available. Similarly, within unrestricted fund balance, committed amounts are reduced first followed by assigned, and then unassigned amounts when expenditures are incurred for purposes for which amounts in any of the unrestricted fund balance classifications could be used.

9. Net Position Net position is classified into three components: net investment in capital assets; restricted; and unrestricted. These classifications are defined as follows:

• Net investment in capital assets - This component of net position consists of capital assets, including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. If there are significant unspent related debt proceeds at year-end, the portion of the debt attributable to the unspent proceeds are not included in the calculation of net investment in capital assets. Rather, that portion of the debt is included in the same net position component as the unspent proceeds.

• Restricted - This component of net position consists of constraints placed on net position use through external constraints imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or constraints imposed by law through constitutional provisions or enabling legislation.

• Unrestricted net position - This component of net position consists of net position that does not meet the definition of "net investment in capital assets" or "restricted".

When both restricted and unrestricted resources are available for use, it is the District's policy to use restricted resources first, then unrestricted resources as they are needed. GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

F. Minimum Fund Balance Policy Fund balance measures the net financial resources available to finance expenditures of future periods. The District's Unassigned General Fund Balance will be maintained to provide the District with sufficient working capital and a margin of safety to address local and regional emergencies without borrowing. The Unassigned General Fund Balance may only be appropriated by resolution of the Governing Board.

Fund Balance of the District may be committed for a specific source by formal action of the Governing Board. Amendments or modification to the committed fund balance must also be approved by formal action of the Governing Board. Committed fund balance does not lapse at year-end. The formal action required to commit fund balance shall be by board resolution or majority vote.

The Governing Board delegates authority to assign fund balance for a specific purpose to the Deputy Superintendent, Business Services of the District with notification at the next scheduled Board Meeting to the Governing Board.

For purposes of fund balance classification, expenditures are to be spent from restricted fund balance first and then unrestricted. Expenditures incurred in the unrestricted fund balances shall be reduced first from the committed fund balance, then from the assigned fund balance and lastly, the unassigned fund balance.

The District is committed to maintaining a prudent level of financial resources to protect against the need to reduce service levels because of temporary revenue shortfalls or unpredicted expenditures. The District's minimum Fund Balance Policy requires a Reserve for Economic Uncertainties, consisting of unassigned amounts, equal to 4.5 percent of General Fund expenditures and other financing uses.

G. Property Tax Calendar The County is responsible for the assessment, collection, and apportionment of property taxes for all jurisdictions including the schools and special districts within the County. The Board of Supervisors levies property taxes as of September 1 on property values assessed on July 1. Secured property tax payments are due in two equal installments. The first is generally due November 1 and is delinquent with penalties on December 10, and the second is generally due on February 1 and is delinquent with penalties on April 10. Secured property taxes become a lien on the property on January 1.

H. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reported period. Actual results could differ from those estimates. GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

I. New GASB Pronouncements During the 2016-17 fiscal year, the following GASB Pronouncements became effective:

1. Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not Within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68 (Issued 06/15) The requirements of this Statement extend the approach to accounting and financial reporting established in Statement 68 to all pensions, with modifications as necessary to reflect that for accounting and financial reporting purposes, any assets accumulated for pensions that are provided through pension plans that are not administered through trusts that meet the criteria specified in Statement 68 should not be considered pension plan assets. It also requires that information similar to that required by Statement 68 be included in notes to financial statements and required supplementary information by all similarly situated employers and nonemployer contributing entities.

2. Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans (Issued 06/15) This Statement replaces Statements No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans. Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, establishes new accounting and financial reporting requirements for governments whose employees are provided with OPEB, as well as for certain nonemployer governments that have a legal obligation to provide financial support for OPEB provided to the employees of other entities. The scope of this Statement includes OPEB plans - defined benefit and defined contribution - administered through trusts that meet the following criteria:

• Contributions from employers and nonemployer contributing entities to the OPEB plan and earnings on those contributions are irrevocable. • OPEB plan assets are dedicated to providing OPEB to plan members in accordance with the benefit terms. • OPEB plan assets are legally protected from the creditors of employers, nonemployer contributing entities, and the OPEB plan administrator. If the plan is a defined benefit OPEB plan, plan assets also are legally protected from creditors of the plan members.

3. Statement No. 77, Tax Abatement Disclosures (Issued 08/15) For financial reporting purposes, this Statement defines a tax abatement as resulting from an agreement between a government and an individual or entity in which the government promises to forgo tax revenues and the individual or entity promises to subsequently take a specific action that contributes to economic development or otherwise benefits the government or its citizens. This Statement requires disclosure of tax abatement information about (1) a reporting government's own tax abatement agreements, and (2) those that are entered into by other governments and that reduce the reporting government's tax revenues. GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

I. New GASB Pronouncements (continued)

4. Statement No. 78, Pensions Provided Through Certain Multiple-Employer Defined Benefit Pension Plans (Issued 12/15) This Statement amends the scope and applicability of Statement 68 to exclude pensions provided to employees of state or local governmental employers through a cost-sharing multiple-employer defined benefit pension plan that (1) is not a state or local governmental pension plan, (2) is used to provide defined benefit pensions both to employees of state or local governmental employers and to employees of employers that are not state or local governmental employers, and (3) has no predominant state or local governmental employer ( either individually or collectively with other state or local governmental employers that provide pensions through the pension plan).

5. Statement No. 80, Blending Requirements for Certain Component Units -An Amendment of GASB StatementNo.14 (Issued01/16) This Statement amends the blending requirements for the financial statement presentation of component units of all state and local governments. The additional criterion requires blending of a component unit incorporated as a not-for-profit corporation in which the primary government is the sole corporate member.

6. Statement No. 82, Pension Issues -An Amendment ofGASB Statements No. 67, No. 68, and No. 73 (Issued 03/16) The objective of this Statement is to address certain issues that have been raised with respect to Statements No. 67, Financial Reporting for Pension Plans, No. 68, Accounting and Financial Reporting for Pensions, and No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68. Specifically, this Statement addresses issues regarding (1) the presentation of payroll­ related measures in required supplementary information, (2) the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements. GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE2-CASH

Cash at June 30, 2017, is reported at fair value and consisted of the following:

Governmental Activities Governmental Proprietary Fiduciary Funds Fund Total Funds Pooled Funds: Cash in county treasury $ 193,133,096 $ 3,853,728 $ 196,986,824 $ 304,072

Deposits: Cash on hand and in banks 3,382,826 3,382,826 3,022,313 Cash with fiscal agent 3,365,448 3,365,448 Cash in revolving fund 73,682 73,682

Total Deposits 3,456,508 3,365,448 6,821,956 3,022,313

Total Cash $ 196,589,604 $ 7,219,176 $ 203,808, 780 $ 3,326,385

Pooled Funds In accordance with Education Code Section 41001, the District maintains substantially all of its cash in the County Treasury. The County pools and invests the cash. These pooled funds are carried at cost which approximates fair value. Interest earned is deposited annually to participating funds. Any investment losses are proportionately shared by all funds in the pool.

Because the District's deposits are maintained in a recognized pooled investment fund under the care of a third party and the District's share of the pool does not consist of specific, identifiable investment securities owned by the District, no disclosure of the individual deposits and investments or related custodial credit risk classifications is required.

In accordance with applicable state laws, the County Treasurer may invest in derivative securities with the State of California. However, at June 30, 2017, the County Treasurer has represented that the Pooled Investment Fund contained no derivatives or other investments with similar risk profiles.

Custodial Credit Risk - Deposits Custodial credit risk is the risk that in the event of a bank failure, the District's deposits may not be returned to it. The District does not have a policy for custodial credit risk for deposits. Cash balances held in banks are insured up to $250,000 by the Federal Depository Insurance Corporation (FDIC) and are collateralized by the respective financial institutions. In addition, the California Government Code requires that a financial institution secure deposits made by State or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under State law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110 percent of the total amount deposited by the public agencies. California law also allows financial institutions to secure public deposits by pledging first trust deed mortgage notes having a value of 150 percent of the secured public deposits and letters of credit issued by the Federal Home Loan Bank of San Francisco having a value of 105 percent of the secured deposits.

As of June 30, 2017, $6,367,190 of the District's bank balance was exposed to custodial credit risk because it was uninsured and collateralized with securities held by the pledging financial institution's trust department or agency, but not in the name of the District. GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 3 -ACCOUNTS RECEIVABLE

Accounts receivable as of June 30, 2017, consisted of the following:

Governmental Activities Non-Major Total General Building Governmental Internal Service Governmental Fiduciary Fund Fund Funds Funds Activities Funds Federal Government: Categorical aid programs $ 2,577,304 $ $ 1,741,115 $ $ 4,318,419 $ State Government: Lottery 1,552,594 1,552,594 Categorical aid programs 222,770 66,805 289,575 Local: Special education 233,474 233,474 Interest 91,023 307,571 118,209 5,407 522,210 Interagency services 527,215 527,215 Miscellaneous 1,491,843 409,950 231,108 2,132,901 7,063

Total $ 6,696,223 $ 307,571 $ 2,336,079 $ 236,515 $ 9,576,388 $ 7,063

NOTE 4 - INTERFUND TRANSACTIONS

A. Balances Due To/From Other Funds Balances due to/from other funds at June 30, 2017, consisted of the following:

Due To Other Funds Non-Major Total General Building Governmental Governmental Self-Insurance Fiduciary Due From Other Funds Fund Fund Funds Funds Fund Fund Total General Fund 17,566 1,374,025 1,391,591 20,410 750 1,412,751 Building Fund 35,965 2,510,691 2,546,656 2,546,656 Non-Major Governmental Funds 1.193,328 8 1.193,336 2,889 1.196,225 Total 1.229,293 17,566 3,884,724 5,131,583 23,299 750 5,155,632

Due to the General Fund from the Building Fund for payroll and utilities for interim housing related to construction projects 32,267 Due to the General Fund from the Building Fund for expenditures 3,698 Due to the General Fund from the County Schools Facilities Fund for expenditures 16,356 Due to the General Fund from the Adult Education Fund for indirect costs, payroll and other expenditures 889,266 Due to the General Fund from Non- Major Governmental Funds for expenditures 82,733 Due to the General Fund from the Food Services Fund for indirect costs, payroll and other expenditures 204,973 Due to the Building Fund from the General Fund for construction expenditures 17,566 Due to the County Schools Facilities Fund from the Building Fund for construction expenditures 124,498 Due to the Adult Education Fund from the General Fund for federal and state revenue, workers comp reimbursement and expenditures 557,635 Due to the Non-Major Governmental Funds from the General Fund for energy savings revenue and expenditures 801,677 Due to the Non-Major Governmental Funds from the Building Fund for construction expenditures 2,386,193 Due to the Food Service Fund from the General Fund for catering and payroll expenditures, and negative student balance write-offs 14,713 Due to the Food Service Fund from the Adult Education Fund for a payroll correction 8 Due to the Self-Insurance Fund from the General Fund for OPEB costs 20,410 Due to the Self-Insurance Fund from the Food Services Fund for OPEB costs 489 Due to the Self-Insurance Fund from Non- Major Governmental Funds for OPEB costs 2,400 Due to the Fiduciary Fund from the General Fund for expenditures 750

Total 5,155,632 GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 4 - INTERFUND TRANSACTIONS (continued)

B. Transfers To /From Other Funds Transfers to/from other funds for the year ended June 30, 2017, consisted of the following:

Transfer to the General Fund from Special Reserve Fund for Capital Outlay Projects for moving costs $ 63,335

NOTE 5 -ACCRUED LIABILITIES

Accrued liabilities at June 30, 2017, consisted of the following:

Non-Major Total General Building Governmental Internal Service Governmental Fund Fund Funds Funds District-Wide Activities Payroll $ 3,764,005 $ 5,504 $ 414,564 $ $ $ 4,184,073 Construction 5,826,688 2,357,893 8,184,581 Vendors payable 6,760,172 498,650 631,787 7,890,609 Unmatured interest 7,050,731 7,050,731 Other liabilities 1,591,955 751 1,592,706

Total $ 12,116,132 $ 5,832,192 $ 3,271,107 $ 631,787 $ 7,051,482 $ 28,902,700

NOTE 6 - UNEARNED REVENUE

Unearned revenue at June 30, 2017, consisted of the following:

Non-Major Total General Governmental Governmental Fund Funds Activities State categorical sources $ 175,703 $ $ 175,703 Local sources 536,350 200,804 737,154

Total $ 712,053 $ 200,804 $ 912,857

NOTE 7 -TAX REVENUE ANTICIPATION NOTES

On August 30, 2016, the District issued $15,000,000 in Tax and Revenue Anticipation Notes through the County of San Diego and San Diego County School Districts Tax and Revenue Anticipation Notes Program bearing interest at 3.0 percent. The notes were issued to finance cash shortfalls occurring in 2016-17. Interest and principal were due and payable on June 30, 2017. The District was required to make two deposits of pledged revenues into a repayment fund in January and April of 2017.

Below is a schedule of changes in short-term debt:

Balance, Balance, July 1, 2016 Additions Deductions June 30, 2017

Tax revenue anticipation notes $ $ 15,000,000 $ 15,000,000 $ ======GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 8 - FUND BALANCES

At June 30, 2017, fund balances of the District's governmental funds were classified as follows:

Bond Interest Non-Major General Building and Redemption Governmental Fund Fund Fund Funds Total Nonspendable: Revolving cash $ 60,000 $ $ $ 13,682 $ 73,682 Stores inventories 128,257 106,310 234,567 Prepaid expenditures 1,677,525 3,194 1,680,719 Total Nonspendable 1,865,782 123,186 1,988,968 Restricted: Categorical programs 6,222,699 6,222,699 Adult education program 1,439,997 1,439,997 Food services program 2,173,257 2,173,257 Capital projects 92,785,621 20,165,357 112,950,978 Debt service 40,423,006 40,423,006 Total Restricted 6,222,699 92,785,621 40,423,006 23,778,611 163,209,937 Assigned: School site carryover reserve 1,187,564 1,187,564 Department carryover reserve 964,068 964,068 2015-16 one-time dollars cariyover 588,000 588,000 ECREC ADA compliance reserve 225,223 225,223 2018-19 CTE general fund contribution 2,600,000 2,600,000 2018-19 budget reduction mitigation reserve 255,470 255,470 SELP A out-of-home care funding reserve 764,976 764,976 District approved non-capital projects 116,761 116,761 Americans with Disabilities Act 645,657 645,657 Vehicle safety reserve 562,155 562,155 Office of Civil Rights 481,692 481,692 Facilities safety reserve 1,550,248 1,550,248 Student Information System 189,188 189,188 Utilities savings energy projects 200,000 200,000 Redevelopment agency projects 472,333 472,333 Total Assigned 6,702,062 4,101,273 10,803,335 Unassigned: Reserve for economic uncertainties 9,686,186 9,686,186 Total Unassigned 9,686,186 9,686,186

Total $ 24,476,729 $ 92,785,621 $ 40,423,006 $ 28,003,070 $185,688,426 GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 9 - CAPITAL ASSETS AND DEPRECIATION

Capital asset activity for the year ended June 30, 2017, was as follows:

Balance, Balance, Juli 1, 2016 Additions Deletions June 30, 2017 Governmental Activities: Capital assets not being depreciated Land $ 39,069,840 $ $ $ 39,069,840 Construction in progress 134,624,307 32,232,274 11,916,551 154,940,030 Total capital assets not being depreciated 173,694,147 32,232,274 11,916,551 194,009,870 Capital assets being depreciated Site improvements 151,988,310 400,115 4,655 152,383,770 Buildings 625,071,622 12,875,014 438,133 637,508,503 Furniture and equipment 24,181,952 772,507 1,231,504 23,722,955 Total capital assets being depreciated 801,241,884 14,047,636 1,674,292 813,615,228 Less accumulated depreciation: Site improvements (68,657,002) (7,072,117) (2,114) (75,727,005) Buildings (153,960,594) (16,840,196) (430,033) (170,370,757) Furniture and equipment [15,469,440] [1,392,281] [1,154,069] [15,707,652] Total accumulated depreciation [238,087,036] [25,304,594] [1,586,216] [261,805,414]

Governmental Activities Capital Assets, net $ 736,848,995 $ 20,975,316 $ 12,004,627 $ 745,819,684

NOTE 10 - GENERAL LONG-TERM DEBT

Changes in long-term debt for the year ended June 30, 2017, were as follows:

Balance, Adjuslmenls Balance, AmounLDue July 1. 2016 for Reslalemenls Addi lions Deduclions June30,2017 WilhinOneYear General Obligalion Bonds Principal repaymenls 496,541,773 151,745,000 93,393,408 554,893,365 14,628,827 Accreled inleresl componenl 41,270,185 14,170,358 10,040,961 56,592 65,424,912 16,173 Unamorlized issuance premium 21,676,450 8,295,550 2,769,791 27,202,209 2,097,101 Tola! - Bonds 559,488,408 14,170,358 170,081,511 96,219,791 647,520,486 16,742,101 Capilal Leases 571,560 240,540 331,020 245,099 Compensaled Absences 2,997,016 74,377 2,922,639 Olher Poslemploymenl Benefils 21,957,949 2,802,194 24,760,143

To Lais 585,014,933 14,170,358 172,883,705 96,534,708 675,534,288 16,987,200

Payments for general obligation bonds are made by the Bond Interest and Redemption Fund. Capital lease payments are made by the General Fund. Compensated absences and other post-employment benefits will be paid for by the fund for which the employee worked.

A. General Obligation Bonds

Election 2 004 - Proposition H On March 3, 2004, the voters of the District approved Proposition H authorizing the District to issue up to $274 million general obligation bonds to repair aging high schools, improve student safety, and qualify for state matching funds. GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 10-GENERAL LONG-TERM DEBT (continued)

A. General Obligation Bonds (continued)

Election 2011- Proposition U On November 4, 2008, the voters of the District approved Proposition U by authorizing the District to issue up to $417 million general obligation bonds for upgrading educational technology, constructing science labs, replacing deteriorating portables, rehabilitating aging classrooms, and improving safety/energy efficiency. The bonds represent an obligation of the District payable solely from ad valorem property taxes levied and collected by the County of San Diego.

March 1, 2017, the District issued $2,060,000 of General Obligation Bonds, Series G-1 (Federally Taxable) and $16,250,000 of General Obligation Bonds, Series G-2. The Series G-1 bonds bear a fixed interest rate of 1.0% and matured on August 1, 2017. The Series G-2 bonds bear fixed interest rates ranging between 2.0% and 5.0% with annual maturities from August 1, 2018 through August 1, 2034. The Series G Bonds are the seventh series of bonds issued under Proposition U, after which $109,943,322 of the bonding authority will remain.

Election 2016 - Measure BB On November 8, 2016, the voters of the District approved Measure BB authorizing the District to issue up to $128 million general obligation bonds to upgrade East County high school classrooms, labs and facilities, repair aging roofs, plumbing and electrical systems, modernize technology infrastructure, improve student safety and security, replace deteriorated portables, construct new school facilities to accommodate growth, and renovate career-training facilities for instruction in science, technology, engineering, math and skilled trades.

March 1, 2017, the District issued $1,710,000 of General Obligation Bonds, Series A-1 (Federally Taxable) and $41,290,000 of General Obligation Bonds, Series A-2. The Series A-1 bonds bear a fixed interest rate of 1.0% and matured on August 1, 2017. The Series A-2 bonds bear fixed interest rates ranging between 2.0% and 5.0% with annual maturities from August 1, 2018 through August 1, 2042. The Series A Bonds are the first series of bonds issued under Proposition BB, after which $85,000,000 of the bonding authority will remain.

Prior-Year Defeasance of Debt In prior years, the District defeased certain general obligation bonds by placing the proceeds of new refunding bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the District's financial statements. At June 30, 2017, $178.07 million of bonds outstanding are considered defeased, which includes $80 million for the bonds described in the next section.

The difference between the reacquisition price and the net carrying amount of the old debt is reported as a deferred outflow of resources and recognized as a component of interest expense in a systematic and rational manner over the remaining life of the old debt or the life of the new debt, whichever is shorter. At June 30, 2017, deferred amounts on refunding were $27,250,471, which includes $11,907,503 for the bonds described in the next section.

20168 General Obligation Refunding Bonds On October 19, 2016, the District issued $90,435,000 of General Obligation Refunding Bonds, Series 20168. The bonds bear fixed interest rates ranging between 2.0°/o and 4.0°/o with annual maturities from February 1, 2017, through August 1, 2045. The net proceeds of $93,056,304 (after premiums and issuance costs) were used to advance refund the District's outstanding Election of 2008 Series B General Obligation Bonds. GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 10-GENERAL LONG-TERM DEBT (continued)

A. General Obligation Bonds (continued) The refunding decreased the District's total debt service payments by $15,669,401. The transaction resulted in an economic gain ( difference between the present value of the debt service on the old and the new bonds) of$12,170,880.

A summary of outstanding general obligation bonds issued is presented below:

Issue Maturity Interest Original Balance, Balance, Series Date Date Rate Issue July 1, 2016 Additions Deductions June 30, 2017 Proposition H (2004) Series 2004 6/17 /2004 8/1/2029 3.0%-5.375% $ 60,841,197 $ 14,521,197 $ $ $ 14,521,197 Series 2006 6/21/2006 6/1/2031 4.0%-5.0% 124,999,225 46,284,224 4,830,000 41,454,224 Series 2008 8/5/2008 8/1/2033 2.0%-5.0% 88,159,578 35,294,674 1,570,000 33,724,674 Series 2011A 11/22/2011 8/1/2020 4.0%-5.0% 10,260,000 10,260,000 10,260,000 Series 20118 11/22/2011 8/1/2017 0.584%-3.028% 10,660,000 5,380,000 2,575,000 2,805,000 Proposition U (2008) Series A 4/15/2009 8/1/2033 0.095%-5.5% 60,000,000 1,530,000 195,000 1,335,000 Series B 8/18/2010 8/1/2045 4.625%-5.5% 80,000,000 80,000,000 80,000,000 Series C 5/25/2011 8/1/2036 4.5%-5.5% 15,000,000 15,000,000 15,000,000 Series D 5/25/2011 8/1/2025 5.479% 25,000,000 24,990,000 24,990,000 Series E 11/13/2013 8/1/2043 2.0%-5.0% 40,000,000 38,650,000 445,000 38,205,000 Series F 6/4/2015 6/1/2040 3.82%-6.00% 68,746,678 68,746,678 798,408 67,948,270 Series G-1 3/1/2017 8/1/2017 1.00% 2,060,000 2,060,000 2,060,000 Series G-2 3/1/2017 8/1/2034 2.0%-5.0% 16,250,000 16,250,000 16,250,000 Measure BB (2016) SeriesA-1 3/1/2017 8/1/2017 1.00% 1,710,000 1,710,000 1,710,000 Series A-2 3/1/2017 8/1/2042 2.0%-5.0% 41,290,000 41,290,000 41,290,000 Refunding Bonds Series 2012 5/17 /2012 8/1/2023 2.0%-5.0% 54,515,000 53,625,000 53,625,000 Series 2015 12/23/2015 8/1/2033 1.3%-5.0% 50,770,000 50,770,000 1,150,000 49,620,000 Series 2016 4/13/2016 8/1/2033 1.0%-5.0% 51,490,000 51,490,000 700,000 50,790,000 Series 20168 10/19/2016 8/1/2045 2.0%-4.0% 90,435,000 90,435,000 1,130,000 89,305,000

$ 496,541,773 $ 151,745,000 $ 93,393,408 $ 554,893,365

Accreted Interest 2004, Series 2004 $ 13,673,501 $ 1,651,429 $ $ 15,324,930 2004, Series 2006 25,283,063 3,371,273 28,654,336 2004, Series 2008 14,170,358 2,384,567 16,554,925 2008, Series F 2,313,621 2,633,692 56,592 4,890,721

$ 55,440,543 $ 10,040,961 $ 56,592 $ 65,424,912

The annual requirements to amortize general obligation bonds outstanding at June 30, 2017, is as follows:

Fiscal Year Principal Interest Total 2017-18 $ 14,628,827 $ 16,550,451 $ 31,179,278 2018-19 15,958,162 16,286,206 32,244,368 2019-20 15,473,461 15,730,507 31,203,968 2020-21 16,302,749 15,120,164 31,422,913 2021-22 15,935,725 17,210,084 33,145,809 2022-27 107,118,963 106,491,744 213,610,707 2027-32 99,508,520 153,519,293 253,027,813 2032-37 109,454,372 95,064,390 204,518,762 2037-42 74,217,586 72,786,889 14 7,004,4 75 2042-46 86,295,000 4,873,750 91,168,750 Total $ 554,893,365 $ 513,633,478 $ 1,068,526,843 GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 10-GENERAL LONG-TERM DEBT (continued)

B. Capital Leases The District has leases for buses valued at $1.2 million under agreements with options to purchase. The annual requirements on these capital leases outstanding as of June 30, 2017, are as follows:

Fiscal Year Principal Interest Total 2017-18 $ 245,099 $ 6,468 $ 251,567 2018-19 85,921 1,822 87,743

Total $ 331,020 $ 8,290 $ 339,310

NOTE 11- JOINT VENTURES

The District participates in two joint ventures under joint powers agreements (JPA) with the San Diego County School Risk Management JPA and the San Diego County Office of Education. The relationship between the District and the JP As is such that the JP As are not a component unit of the District for financial reporting purposes.

The JPAs provide property and liability insurance coverage for their member school districts. The JPAs are governed by a board consisting of a representative from each member district. The governing board controls the operations of its JP As independent of any influence by the member districts beyond their representation on the governing board. Each member district pays a premium commensurate with the level of coverage requested and shares surpluses and deficits proportionately to its participation in the JPAs. Financial information for the most recently audited period is available directly from the JPA.

On August 10, 1994, the District entered into a Joint Exercise Power Agreement with the San Diego County Office of Education for the purpose of establishing a joint use educational facility. The agreement created a public entity known as the San Diego County Educational Facilities Authority No. 1 (the "Authority"") to be separate and apart from the District and the Office of Education. The Authority sold $4,620,000 in 1995 Lease Revenue Bonds for the funding of the joint facilities. The repayment of the bonds is made equally by the District and the San Diego County Office of Education from space rental for the joint facility. The bonds were paid off in full effective January 15, 2017. Financial information for the JPA can be obtained by sending a written request to Grossmont Union High School District, Attention: Business Services, PO Box 1043, El Cajon, CA 91944.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

A. State and Federal Allowances, Awards and Grants The District has received state and federal funds for specific purposes that are subject to review and audit by the grantor agencies. Although such audits could generate expenditure disallowances under terms of the grants, it is believed that any required reimbursement will not be material.

B. Construction Commitments As of June 30, 2017, the District had commitments with respect to unfinished capital projects of approximately $5.6 million to be paid from a combination of State and local funds. GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 12 - COMMITMENTS AND CONTINGENCIES (continued)

C. Litigation The District is involved in certain legal matters that arose out of the normal course of business. The District has not accrued a liability for any potential litigation against it because it does not meet the criteria to be considered a liability at June 30, 2017.

D. Unification of Alpine School District Members of the community of Alpine have submitted a petition to unify the Alpine Union School District. The County Committee on School District Organization has approved the petition and forwarded it to the State of California for its review.

NOTE 13 - RISK MANAGEMENT

The District is exposed to various risks of loss related to torts, thefts, damage to District assets, errors and omissions, employee injuries and natural disasters. The District's risk management activities are recorded in the General and Self-Insurance Funds. Employee life, health, and disability programs are administered by the General Fund through the purchase of commercial insurance. The District participates in a public entity risk pool, as described in Note 11, for claims in excess of insured amounts for workers' compensation and liability protection. The Dental and Vision Program, for which the District retains the risk of loss, is administered through the Self- Insurance Fund. The District purchases commercial insurance coverage for other types of risk There have been no significant reductions in insurance coverage from the prior year. Settled claims have not exceeded this commercial coverage in any of the past three fiscal years.

NOTE 14- PENSION PLANS

Qualified employees are covered under multiple-employer defined benefit pension plans maintained by agencies of the State of California. Certificated employees are members of the California State Teachers' Retirement System (Ca!STRS), and classified employees are members of California Public Employees' Retirement System (Ca!PERS).

A. General Information about the Pension Plans

Plan Descriptions The District contributes to the California State Teachers' Retirement System (Ca!STRS), a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by CalSTRS. Benefit provisions under the Plan are established by State statute and District resolution. Ca!STRS issues publicly available reports that include a full description of the pension plan regarding benefit provisions, assumptions, and membership information that can be found on the CalSTRS website.

The District also contributes to the School Employer Pool under the California Public Employees' Retirement System (Ca!PERS), a cost-sharing multiple-employer public employee retirement system defined benefit pension plan administered by Cal PERS. Benefit provisions under the Plan are established by State statute and District resolution. Ca!PERS issues publicly available reports that include a full description of the pension plan regarding benefit provisions, assumptions, and membership information that can be found on the Ca!PERS website. GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 14- PENSION PLANS (continued)

A. General Information aboutthe Pension Plans ( continued)

Benefits Provided CalSTRS provides retirement, disability, and death benefits. Retirement benefits are determined as 2°/o of final compensation for each year of credited service at age 60 for members under CalSTRS 2% at 60, or age 62 for members under Ca/STRS 2% at 62, increasing to a maximum of 2.4% at age 63 for members under Ca/STRS 2% at 60, or age 65 for members under Ca/STRS 2% at 62. The normal retirement eligibility requirements are age 60 for members under Ca/STRS 2% at 60, or age 62 for members under CalSTRS 2% at 62, with a minimum of five years of service credited under the Defined Benefit Program, which can include service purchased from teaching in an out-of-state or foreign public school. Employees are eligible for service-related disability benefits after five years of service, unless the member is disabled due to an unlawful act of bodily injury committed by another person while working in CalSTRS covered employment, in which case the minimum is one year. Disability benefits are equal to fifty percent of final compensation regardless of age and service credit. Designated recipients of CalSTRS retired members receive a $6,163 lump-sum death payment. There is a 2% simple increase each September 1 following the first anniversary of the date on which the monthly benefit began to accrue. The annual 2°/o increase is applied to all continuing benefits other than Defined Benefit Supplement annuities. However, if the member retires with a Reduced Benefit Election, the increase does not begin to accrue until the member reaches age 60 and is not payable until the member receives the full benefit. This increase is also known as the improvement factor.

CalPERS also provides retirement, disability, and death benefits. Retirement benefits are determined as 1.1 °/o of final compensation for each year of credited service at age SO for members under 2% at 55, or 1.0°/o at age 52 for members under 2% at 62, increasing to a maximum of 2.5°/o at age 63 for members under 2% at 55, or age 67 for members under 2% at 62. To be eligible for service retirement, members must be at least age SO and have a minimum of five years of CalPERS-credited service. Members joining on or after January 1, 2013 must be at least age 52. Disability retirement has no minimum age requirement and the disability does not have to be job related. However, members must have a minimum of five years of Cal PERS service credit.

Pre-retirement death benefits range from a simple return of member contributions plus interest to a monthly allowance equal to half of what the member would have received at retirement paid to a spouse or domestic partner. To be eligible for any type of monthly pre-retirement death benefit, a spouse or domestic partner must have been either married to the member or legally registered before the occurrence of the injury or the onset of the illness that resulted in death, or for at least one year prior to death. Cost-of-living adjustments are provided by law and are based on the Consumer Price Index for all United States cities. Cost-of-living adjustments are paid the second calendar year of the member's retirement on the May 1 check and then every year thereafter. The standard cost-of-living adjustment is a maximum of 2°/o per year. GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 14- PENSION PLANS (continued)

A. General Information aboutthe Pension Plans ( continued)

Contributions Active CalSTRS plan members under 2% at 60 were required to contribute 10.25% and plan members under 2% at 62 were required to contribute 9.205% of their salary in 2016-17. The required employer contribution rate for fiscal year 2016-17 was 12.58°/o of annual payroll. The contribution requirements of the plan members are established by State statute. Active CalPERS plan members are required to contribute 7.0°/o of their salary, and the District is required to contribute an actuarially determined rate. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The required employer contribution for fiscal year 2016-17 was 13.888°/o. The contribution requirements of the plan members are established by State statute.

For the fiscal year ended June 30, 2017, the contributions recognized as part of pension expense for each Plan were as follows: CalSTRS CalPERS Employer contributions $ 11,130,968 $ 6,159,945 Employee contributions paid by employer $ $ Employer contributions paid by State $ 6,978,197 $

B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions

As of June 30, 2017, the District reported net pension liabilities for its proportionate shares of the net pension liability of each Plan as follows: Proportionate Share of Net Pension Liability CalSTRS $ 135,880,080 CalPERS $ 71,890,224

Total Net Pension Liability $ 207,770,304

The District's net pension liability for each Plan is measured as the proportionate share of the net pension liability. The net pension liability of each of the Plans is measured as of June 30, 2016, and the total pension liability for each Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2015, rolled forward to June 30, 2016, using standard update procedures. The District's proportion of the net pension liability was based on a projection of the District's long-term share of contributions to the pension plans relative to the projected contributions of all participating employers, actuarially determined. The District's proportionate share of the net pension liability for each Plan as of June 30, 2015 and 2016, was as follows: CalSTRS CalPERS Proportion - June 30, 2015 0.1770% 0.3717% Proportion - June 30, 2016 0.1680% 0.3640%

Change - Increase (Decrease) -0.0090% -0.0077% GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 14- PENSION PLANS (continued)

B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (continued)

For the year ended June 30, 2017, the District recognized pension expense of $22,789,950. At June 30, 2017, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred Outflows Deferred Inflows of Resources of Resources Pension contributions subsequent to measurement date $ 17,290,913 $ Differences between actual and expected experience 3,091,969 (3,314,640) Changes in assumptions (2,159,873) Adjustment due to differences in proportions (9,714,170) Net differences between projected and actual earnings on plan investments 29,056,950 (7,099,499)

$ 49,439,832 $ (22,288,182)

The total amount of $17,290,913 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows:

Year Ended June 30, Amount 2018 $ 2,056,764 2019 2,319,012 2020 6,290,860 2021 1,591,270 2022 (1,424,139) Thereafter

Actuarial Assumptions - The total pension liabilities in the June 30, 2016 actuarial valuations were determined using the following actuarial assumptions:

CalSTRS CalPERS Valuation Date June 30, 2015 June 30, 2015 Measurement Date June 30, 2016 June 30, 2016 Actuarial Cost Method Entry age normal Entry age normal Actuarial Assumptions: Discount Rate 7.60°/o 7.65°/o Inflation 3.QQO/o 2.75°/o Wage Growth 3.75°/o Varies Post-retirement Benefit Increase 2.QQO/o 2.QQO/o Investment Rate of Return 7.60°/o 7.65°/o GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 14- PENSION PLANS (continued)

B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (continued)

CalSTRS uses custom mortality tables to best fit the patterns of mortality among its members. These custom tables are based on RP2000 series tables adjusted to fit CalSTRS experience. RP2000 series tables are an industry standard set of mortality rates published by the Society of Actuaries. See CalSTRS July 1, 2006 - June 30, 2010 Experience Analysis for more information. The underlying mortality assumptions and all other actuarial assumptions used in the CalPERS June 30, 2015 valuation were based on the results of an actuarial experience study for the period 1997 to 2011. Further details of the Experience Study can be found on the Cal PERS website.

Discount Rate - for CalSTRS The discount rate used to measure the total pension liability was 7.60°/o. The projection of cash flows used to determine the discount rate assumed that contributions from plan members and employers will be made at statutory contribution rates in accordance with the rate increase per Assembly Bill 1469. Projected inflows from investment earnings were calculated using the long-term assumed investment rate of return (7.60°/o) and assuming that contributions, benefit payments, and administrative expense occur midyear. Based on those assumptions, the STRP's fiduciary net position was projected to be available to make all projected future benefit payments to current plan members. Therefore, the long­ term assumed investment rate of return was applied to all periods of projected benefit payments to determine the total pension liability.

Discount Rate - for CalPERS The discount rate used to measure the total pension liability for PERF B was 7.65%. A projection of expected benefit payments and contributions was performed to determine if the assets would run out. The test revealed the assets would not run out. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability for PERF B. The results of the crossover testing for the Plan are presented in a detailed report that can be obtained on Cal PERS' website.

The long-term expected rate of return on pension plan investments was determined using a building­ block method in which best estimate ranges of expected future real rates of return ( expected returns, net of pension plan investment expense and inflation) are developed for each major asset class.

In determining the long-term expected rate of return, both short-term and long-term market return expectations as well as the expected pension fund cash flows were taken into account. Using historical returns of all of the funds' asset classes, expected compound (geometric) returns were calculated over the short term (first 10 years) and the long-term (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short­ term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent.

The long-term expected real rates of return by asset class can be found in CalPERS' Comprehensive Annual Financial Report for the fiscal year ended June 30, 2016. GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 14- PENSION PLANS (continued)

B. Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions (continued)

Discount Rate - for CalPERS ( continued) The table below reflects the long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These rates of return are net of administrative expenses.

Long-Term Expected Target Allocation Rate of Return Asset Class Ca!STRS CalPERS Ca!STRS CalPERS Global Equity 47% 51% 6.30% 5.71% Global Debt Securities N/A 20% N/A 2.43% Inflation Sensitive 4% 6% 3.80% 3.36% Private Equity 13% 10% 9.30% 6.95% Absolute Return/Risk Mi ti gating Strategies 9% N/A 2.90% N/A Real Estate 13% 10% 5.20% 5.13% Infrastructure and Forestland N/A 2% N/A 5.09% Fixed Income 12% N/A 0.30% N/A Cash/Liquidity 2% 1% -1.00% -1.05%

100% 100%

Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate The following presents the District's proportionate share of the net pension liability for each Plan, calculated using the discount rate for each Plan, as well as what the District's proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1-percentage point higher than the current rate:

CalSTRS CalPERS 1 o/o Decrease 6.60% 6.65% Net Pension Liability $ 195,562,080 $ 107,260,616

Current Discount Rate 7.60% 7.65% Net Pension Liability $ 135,880,080 $ 71,890,224

1 % Increase 8.60% 8.65% Net Pension Liability $ 86,311,680 $ 42,437,414

Pension Plan Fiduciary Net Position Detailed information about each pension plan's fiduciary net position is available in the separately issued CalSTRS and CalPERS financial reports.

C. Payable to the Pension Plans At June 30, 2017, the District reported a payable of $816,807 and $385,016 for the outstanding amount of contributions to the CalSTRS and CalPERS pension plans, respectively, required for the fiscal year ended June 30, 2017. GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 15 - OTHER POSTEMPLOYMENT BENEFITS

Grossmont Union High School District administers a defined benefit postemployment plan, where plan assets may be used only for the payment of benefits to the members of that plan. The plan assets are accounted for in the Retiree Benefit Fund. The District implemented Governmental Accounting Standards Board Statement #45, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, in 2007-08.

Plan Descriptions and Contribution Information Membership in the plan consisted of the following:

Retirees and beneficiaries receiving benefits 250 Active plan members 1,876 Total 2,126

*As ofjune 30, 2015, actuarial valuation

The District provides postemployment health care benefits based on years of service and age at time of retirement, in accordance with District employment contracts as illustrated below.

Employee Min. Years of Age at Group Service Retirement Management 10 SS Supervisory 10 SS Confidential 10 SS GEA 10 54 CSEA 10 54 SEIU 10 54

The District's funding policy is based on the projected pay-as-you-go financing requirements, with additional amounts to prefund benefits as determined annually by the governing board. For fiscal year 2016-17, the District contributed $3,259,615. This includes $2,317,153 in pay-as-you-go costs and $942,462 in implicit rate subsidies.

Annual OPEB Cost and Net OPEB Obligation The District's annual OPEB cost is calculated based on the Annual Required Contribution (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities ( or funding excess) over a period not to exceed thirty years.

The following table shows the components of the District's annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the District's net OPEB obligation:

Annual required contribution (ARC) $ 6,371,780 Interest on net OPEB obligation 1,097,898 Adjustment to ARC (1,407,869] Annual OPEB cost 6,061,809 Contributions made (3,259,615) Increase in net OPEB obligation 2,802,194 Net OPEB obligation - July 1, 2016 21,957,949 Net OPEB obligation - June 30, 2017 $ 24,760,143 GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 15- OTHER POSTEMPLOYMENT BENEFITS (continued)

Annual OPEB Cost and Net OPEB Obligation (continued) The District's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2016-17 and the preceding two years are as follows:

Annual Year Ended OPEB Percentage NetOPEB June 30, Cost Contributed Obligation 2017 $ 6,061,809 54% $ 24,760,143 2016 $ 6,352,833 50% $ 21,957,949 2015 $ 6,248,772 80% $ 18,769,815

Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designated to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. Additional information as of the latest actuarial valuation follows:

Valuation Date June 30, 2015 Actuarial Cost Method Projected unit credit Amortization Method Level-dollar Valuation Type Closed group Remaining Amortization Period 30 Asset Valuation N/A Actuarial Assumptions: Investment rate of return 6.12% Discount Rate 5.0% Inflation 2.75% Healthcare cost trend rates 7.0% to 5.0% GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2017

NOTE 16 - SUBSEQUENT EVENTS

Events subsequent to June 30, 2017, have been evaluated through November 20, 2017, the date at which the District's audited financial statements were available to be issued. The following events requiring disclosure have occurred through this date.

A. General Obligation Refunding Bonds On September 26, 2017, the District issued $15,450,000 of General Obligation Refunding Bonds, Series 2017. The bonds bear fixed interest rates ranging between 3.0°/o and 5.0°/o with annual maturities from August 1, 2018, through August 1, 2036. The net proceeds of $17,084,504 (after premiums and issuance costs) were used to advance refund the District's outstanding Election of2008 Series C General Obligation Bonds.

B. General Obligation Bonds On September 26, 2017, the District issued $10,000,000 of General Obligation Bonds, Election of 2008, Series H-1 (Federally taxable) and Series H-2. The Series H-1 bonds, issued in the amount of $285,000 bear a fixed interest rate of 1.4% and mature on August 1, 2018, while the Series H-2 bonds, issued in the amount of $9, 715,000 bear fixed interest rates ranging between 3.0°/o and 5.0°/o with annual maturities from August 1, 2019, through August 1, 2040.

C. Tax Revenue Anticipation Notes On August 29, 2017, the District issued $15,000,000 in Tax and Revenue Anticipation Notes through the County of San Diego and San Diego County School Districts Tax and Revenue Anticipation Notes Program bearing interest at 3.0°/o. The notes were issued to finance cash shortfalls occurring in 2017-18. Interest and principal are due and payable on June 29, 2018. The District will be required to make two deposits of pledged revenues into a repayment fund in January and April of 2018.

NOTE 17 - ADJUSTMENTS FOR RESTATEMENT

A. In prior years, the District presented the financial activity for its Cafeteria program in an Enterprise Fund. Beginning with 2016-17, the District has elected to present the fund as a governmental fund, resulting in a restatement between the governmental and the business-type activities of $2,848,107.

B. The District has adjusted the beginning balance of its general obligation bonds payable by $14,170,358 to recognize additional accreted interest on capital appreciation bonds, resulting in a restatement of net position at July 1, 2016. (This page intentionally left blank) Required Supplementary Information (This page intentionally left blank) GROSSMONT UNION HIGH SCHOOL DISTRICT Budgetary Comparison Schedule - General Fund For the Fiscal Year Ended June 30, 2017

Variance with Budgeted Amounts Actual* Final Budget- Original Final (Budgetary Basis) Pos (Neg) Revenues LCFF Sources $ 159,085,944 $ 158,305,393 $ 158,305,393 $ Federal 12,372,385 13,224,046 12,852,722 (371,324) Other State 18,497,214 20,941,774 21,044,009 102,235 Other Local 21,245,418 23,017,256 24,289,776 1,272,520 Total Revenues 211,200,961 215,488,469 216,491,900 1,003,431 Expenditures Current: Certificated Salaries 85,972,133 87,472,421 88,564,228 (1,091,807) Classified Salaries 39,516,457 39,827,922 40,443,579 (615,657) Employee Benefits 50,671,184 51,226,872 50,735,302 491,570 Books and Supplies 8,498,385 9,416,079 8,117,540 1,298,539 Services and Other Operating Expenditures 24,872,629 27,452,418 25,707,451 1,744,967 Transfers of indirect costs (908,098) (1,067,002) (1,085,865) 18,863 Capital Outlay 673,655 1,919,360 1,670,092 249,268 Intergovernmental 769,683 983,536 1,095,487 [111,951] Total Expenditures 210,066,028 217,231,606 215,247,814 1,983,792 Excess (Deficiency) of Revenues Over (Under) Expenditures 1,134,933 (1,743,137) 1,244,086 2,987,223 Other Financing Sources and Uses Interfund Transfers In 50,000 50,000 63,335 13,335 Total Other Financing Sources and Uses 50,000 50,000 63,335 13,335

Excess (Deficiency) of Revenues and Other Financing Sources Over (Under) Expenditures and Other Financing Uses 1,184,933 (1,693,137) 1,307,421 3,000,558 Fund Balance, July 1, 2016 19,307,608 22,288,321 22,288,321 Fund Balance, June 30, 2017 $ 20,492,541 $ 20,595,184 $ 23,595,742 $ 3,000,558

*The actual amounts reported in this schedule are for the General Fund only, and do not agree with the amounts reported on the Statement of Revenues, Expenditures, and Changes in Fund Balances because the amounts on that schedule include the financial activity of the Special Reserve Fund for Other Than Capital Outlay Projects, in accordance with the fund type definitions promulgated by GASE Statement No. 54. GROSSMONT UNION HIGH SCHOOL DISTRICT Schedule of Funding Progress For the Fiscal Year Ended June 30, 2017

Actuarial UAAL as a Actuarial Accrued Unfunded Percentage of Valuation Value of Liability AAL Funded Covered Covered Date Assets (AAL) [UAAL) Ratio Payroll Payroll June 30, 2015 $ 3,106,318 $ 50,669,237 $ 47,562,919 7°/o $ 139,800,000 34°/o June 30, 2013 $ $ 50,239,240 $ 50,239,240 QO/o $ 108,800,000 46°/o July 1, 2012 $ $ 50,826,599 $ 50,826,599 QO/o $ 105,663,000 48°/o GROSSMONT UNION HIGH SCHOOL DISTRICT Schedule of Proportionate Share of the Net Pension Liability For the Fiscal Year Ended June 30, 2017

Last Ten Fiscal Years*

2016 2015 2014

CalSTRS

District's proportion of the net pension liability 0.16800/o 0.17700/o 0.17600/o

District's proportionate share of the net pension liability $ 135,880,080 $ 119,163,480 $ 102,849,120 State's proportionate share of the net pension liability associated with the District 77,365,494 63,024,176 62,105,363

Totals $ 213,245,574 $ 182,187,656 $ 164,954,483

District's covered-employee payroll $ 85,504,958 $ 81,779,313 $ 79,314,812

District's proportionate share of the net pension liability as a percentage of its covered-employee payroll 158.91 o/o 145.710/o 129.670/o

Plan fiduciary net position as a percentage of the total pension liability 700/o 740/o 770/o

CalPERS

District's proportion of the net pension liability 0.36400/o 0.37170/o 0.37770/o

District's proportionate share of the net pension liability $ 71,890,225 $ 54,788,946 $ 42,878,146

District's covered-employee payroll $ 43,585,667 $ 41,247,524 $ 39,731,384

District's proportionate share of the net pension liability as a percentage of its covered-employee payroll 164.940/o 132.83% 107.92%

Plan fiduciary net position as a percentage of the total pension liability 74% 79% 83%

* This schedule is required to show information for ten years; however, until a full ten year trend is compiled, information is presented for those years for which information is available. GROSSMONT UNION HIGH SCHOOL DISTRICT Schedule of Pension Contributions For the Fiscal Year Ended June 30, 2017

Last Ten Fiscal Years*

2017 2016 2015

CalSTRS

Contractually required contribution $ 11,130,968 $ 9,174,682 $ 7,262,003

Contributions in relation to the contractually required contribution 11,130,968 9,174,682 7,262,003

Contribution deficiency ( excess): $ $ $

District's covered-employee payroll $ 88,481,463 $ 85,504,958 $ 81,779,313

Contributions as a percentage of covered-employee payroll 12.580/o 10. 730/o 8.880/o

CalPERS

Contractually required contribution $ 6,159,945 $ 5,163,594 $ 4,855,246

Contributions in relation to the contractually required contribution 6,159,945 5,163,594 4,855,246

Contribution deficiency ( excess): $ $ $

District's covered-employee payroll $ 44,354,443 $ 43,585,667 $ 41,247,524

Contributions as a percentage of covered-employee payroll 13.8880/o 11.8470/o 11.7710/o

* This schedule is required to show information for ten years; however, until a full ten year trend is compiled, information is presented for those years for which information is available. GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to the Required Supplementary Information For the Fiscal Year Ended June 30, 2017

NOTE 1 - PURPOSE OF SCHEDULES

Budgetary Comparison Schedules These schedules are required by GASB Statement No. 34 as required supplementary information (RSI) for the General Fund and for each major special revenue fund that has a legally adopted annual budget. The budgetary comparison schedules present both (a) the original and (b) the final appropriated budgets for the reporting period as well as (c) actual inflows, outflows, and balances, stated on the District's budgetary basis. A separate column to report the variance between the final budget and actual amounts is also presented, although not required.

The Special Reserve Fund for Other Than Capital Outlay Projects does not meet the criteria for classification as a special revenue fund in accordance with generally accepted accounting principles (GAAP) and is therefore included as part of the General Fund for GAAP basis financial reporting. As a result, the information pertaining to the Special Reserve Fund for Other Than Capital Outlay Projects is not included as part of budgetary comparisons for the General Fund.

The perspective difference between the basis of budgeting and GAAP is as follows:

Budgetary Basis Special Reserve Fund General for Other Than Fund Capital Outlay GAAP Total Revenues LCFF Sources $ 158,305,393 $ $ 158,305,393 Federal 12,852, 722 12,852,722 Other State 21,044,009 21,044,009 Other Local 24,289, 776 8,968 24,298,744

Total Revenues 216,491,900 8,968 216,500,868

Expenditures Current: Certificated Salaries 88,564,228 88,564,228 Classified Salaries 40,443,579 40,443,579 Employee Benefits 50,735,302 50, 735,302 Books and Supplies 8,117,540 8,117,540 Services and Other Operating Expenditures 25,707,451 25,707,451 Transfers of indirect costs (1,085,865) (1,085,865) Capital Outlay 1,670,092 1,6 70,092 Intergovernmental 1,095,487 1,095,487

Total Expenditures 215,247,814 215,247,814

Excess (Deficiency) of Revenues Over (Under) Expenditures 1,244,086 8,968 1,253,054

Other Financing Sources and Uses lnterfund Transfers In 63,335 63,335

Total Other Financing Sources and Uses 63,335 63,335

Excess (Deficiency) of Revenues and Other Financing Sources Over (Under) Expenditures and Other Financing Uses 1,307,421 8,968 1,316,389

Fund Balance, July 1, 2016 22,288,321 872,769 23,161,090

Fund Balance, June 30, 2017 $ 23,595,742 $ 881,737 $ 24,477,479 GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to the Required Supplementary Information For the Fiscal Year Ended June 30, 2017

NOTE 1- PURPOSE OF SCHEDULES (continued)

Schedule of Funding Progress This schedule is required by GASB Statement No. 45 for all sole and agent employers that provide other postemployment benefits (OPEB). The schedule presents, for the most recent actuarial valuation and the two preceding valuations, information about the funding progress of the plan, including, for each valuation, the actuarial valuation date, the actuarial value of assets, the actuarial accrued liability, the total unfunded actuarial liability (or funding excess), the actuarial value of assets as a percentage of the actuarial accrued liability (funded ratio), the annual covered payroll, and the ratio of the total unfunded actuarial liability ( or funding excess) to annual covered payroll.

Schedule of Proportionate Share of the Net Pension Liability This schedule is required by GASB Statement No. 68 and is required for all employers in a cost-sharing pension plan. The schedule reports the following information: • The proportion (percentage) of the collective net pension liability (similar to the note disclosure) • The proportionate share (amount) of the collective net pension liability • The employer's covered-employee payroll • The proportionate share (amount) of the collective net pension liability as a percentage of the employer's covered-employee payroll • The pension plan's fiduciary net position as a percentage of the total pension liability

Schedule of Pension Contributions This schedule is required by GASB Statement No. 68 and is required for all employers in a cost-sharing pension plan. The schedule reports the following information: • If an employer's contributions to the plan are actuarially determined or based on statutory or contractual requirements: the employer's actuarially determined contribution to the pension plan (or, if applicable, its statutorily or contractually required contribution), the employer's actual contributions, the difference between the actual and actuarially determined contributions ( or statutorily or contractually required), and a ratio of the actual contributions divided by covered­ employee payroll.

NOTE 2 - SUMMARY OF CHANGES OF BENEFITS OR ASSUMPTIONS

Benefit Changes There were no changes to benefit terms that applied to all members of the Schools Pool.

Changes of Assumptions There were no changes of assumptions GROSSMONT UNION HIGH SCHOOL DISTRICT Notes to the Required Supplementary Information For the Fiscal Year Ended June 30, 2017

NOTE 3 -EXCESS OF EXPENDITURES OVER APPROPRIATIONS

At June 30, 2017, the District incurred the following excess of expenditures over appropriations in individual major funds presented in the Budgetary Comparison Schedule:

General Fund: Current: Certificated Salaries $ 1,091,807 Classified Salaries 615,657 Intergovernmental 111,951 (This page intentionally left blank) Supplementary Information (This page intentionally left blank) GROSSMONT UNION HIGH SCHOOL DISTRICT Local Educational Agency Organization Structure June 30, 2017

The District is located in the eastern portion of San Diego County and encompasses a territory of about 465 square miles, including all of the Cities of El Cajon, Santee, and Lemon Grove, nearly all of the city of La Mesa, a very small portion of the city of San Diego, and the unincorporated communities of Alpine, Dulzura, Lakeside, Jamul and Spring Valley. The District is a high school district providing public education for students in grades 9-12. The District was formed in 1920. The District is currently operating nine high schools, one continuation school, two alternative education sites, four special education facilities, a middle college high school program, a Career Technical Education (CTE) program, and an adult education program. Two charter schools also operate under the sponsorship of the District.

GOVERNING BOARD

Member Office Term Expires Robert Shield President 2018

Dr. Gary Woods Vice-President 2018 Jim Kelly Clerk 2018

Chris Fite Member 2020 Elva Salinas Member 2020

DISTRICT ADMINISTRATORS

Dr. Timothy Glover, Superintendent

Scott H. Patterson, Deputy Superintendent, Business Services

Theresa Kemper, Assistant Superintendent, Educational Services

Julie Mottershaw, Assistant Superintendent, Human Resources GROSSMONT UNION HIGH SCHOOL DISTRICT Combining Balance Sheet - Non-Major Governmental Funds For the Fiscal Year Ended June 30, 2017

Total Capital County School Special Reserve Non-Major Adult Education Cafeteria Facilities Facilities Fund for Capital Governmental Fund Fund Fund Fund Outlay Projects Funds ASSETS Cash $ 1,556,393 $ 1,557,657 $ 3,801,850 $ 16,544,471 $ 2,880,528 $ 26,340,899 Accounts receivable 1,116,782 1,030,760 30,850 95,404 62,283 2,336,079 Due from other funds 557,635 14,721 124,498 3,187,870 3,884,724 Stores inventories 106,310 106,310 Prepaid expenditures 3,194 3,194

Total Assets $ 3,230,810 $ 2,712,642 $ 3,832,700 $ 16,764,373 $ 6,130,681 $ 32,671,206

LIABILITIES AND FUND BALANCES

Liabilities Accounts payable $ 713,547 $ 195,532 $ 3,225 $ 398,818 $ 1,959,985 $ 3,271,107 Due to other funds 891,666 205,463 13,317 16,356 69,423 1,196,225 Unearned revenue 184,600 16,204 200,804

Total Liabilities 1,789,813 417,199 16,542 415,174 2,029,408 4,668,136

Fund Balances Nonspendable 1,000 122,186 123,186 Restricted 1,439,997 2,173,257 3,816,158 16,349,199 23,778,611 Assigned 4,101,273 4,101,273

Total Fund Balances 1,440,997 2,295,443 3,816,158 16,349,199 4,101,273 28,003,070

Total Liabilities and Fund Balances $ 3,230,810 $ 2,712,642 $ 3,832,700 $ 16,764,373 $ 6,130,681 $ 32,671,206 GROSSMONT UNION HIGH SCHOOL DISTRICT Combining Statement of Revenues, Expenditures, and Changes in Fund Balance - Non-Major Governmental Funds For the Fiscal Year Ended June 30, 2017

Total Capital County School Special Reserve Non-Major Adult Education Cafeteria Facilities Facilities Fund for Capital Governmental REVENUES Fund Fund Fund Fund Outlay Projects Funds

Federal sources $ 2,622,079 $ 5,587,205 $ $ $ $ 8,209,284 Other state sources 11,553,398 372,082 995,202 12,920,682 Other local sources 2,352,309 2,010,546 861,145 227,263 3,729,729 9,180,992

Total Revenues 16,527,786 7,969,833 861,145 227,263 4,724,931 30,310,958

EXPENDITURES Current: Instruction 6,518,834 6,518,834 Instruction-Related Services: Supervision of instruction 1,865,695 1,865,695 School site administration 5,349,886 5,349,886 Pupil Services: Food services 7,165,842 7,165,842 General Administration Services: Other general administration 25,885 25,885 Transfers of indirect costs 725,230 360,635 1,085,865 Plant services 1,168,815 480,864 508,445 2,158,124 Capital outlay 235,953 147,939 12,756,748 3,803,106 16,943,746

Total Expenditures 15,864,413 8,007,341 173,824 12,756,748 4,311,551 41,113,877

Excess (Deficiency J of Revenues Over (Under) Expenditures 663,373 [37,508) 687,321 [12,529,485) 413,380 [10,802,919)

OTHER FINANCING SOURCES (USES) Interfund transfers out [63,335) [63,335)

Total Other Financing Sources and Uses (63,335) (63,335)

Net Change in Fund Balances 663,373 (37,508) 687,321 (12,529,485) 350,045 (10,866,254)

Fund Balances, July 1, 2016 777,624 2,332,951 3,128,837 28,878,684 3,751,228 38,869,324

Fund Balances, June 30, 2017 $ 1,440,997 $ 2,295,443 $ 3,816,158 $ 16,349,199 $ 4,101,273 $ 28,003,070 GROSSMONT UNION HIGH SCHOOL DISTRICT Statement a/Changes in Assets and Liabilities -Agency Funds For the Fiscal Year Ended June 30, 2017

Balance, Balance, Juli: 1, 2016 Additions Deductions June 30, 2017 Assets Cash $ 2,508,863 $ 1,132,949 $ 915,531 $ 2,726,281 Other current assets 3,751 3,751 Accounts receivable 12,813 6,104 12,813 6,104 Total Assets $ 2,525,427 $ 1,139,053 $ 932,095 $ 2,732,385

Liabilities Accounts payable $ 94,620 $ 81,887 $ 94,620 $ 81,887 Other liabilities 44,040 44,040 Due to student groups 2,430,807 1,139,053 963,402 2,606,458 Total Liabilities $ 2,525,427 $ 1,264,980 $ 1,058,022 $ 2, 732,385 GROSSMONT UNION HIGH SCHOOL DISTRICT Budgetary Comparison Schedule -Adult Education Fund For the Fiscal Year Ended June 30, 2017

Variance with Budgeted Amounts Actual Final Budget- Original Final (Budgetary Basis) Pos (Neg) Revenues Federal $ 2,609,990 $ 2,666,605 $ 2,622,079 $ (44,526) Other State 9,230,019 12,176,327 11,553,398 (622,929) Other Local 3,039,883 2,353,168 2,352,309 (859) Total Revenues 14,879,892 17,196,100 16,527,786 (668,314) Expenditures Current: Certificated Salaries 5,034,881 5,090,581 5,704,792 (614,211) Classified Salaries 2,404,993 2,222,810 2,498,633 (275,823) Employee Benefits 3,166,956 3,085,794 3,187,315 (101,521) Books and Supplies 1,670,415 1,822,118 799,048 1,023,070 Services and Other Operating Expenditures 2,029,070 3,571,113 2,706,646 864,467 Transfers of indirect costs 558,577 741,581 725,230 16,351 Capital Outlay 15,000 242,749 (242,749) Total Expenditures 14,879,892 16,533,997 15,864,413 669,584 Excess (Deficiency) of Revenues Over (Under) Expenditures 662,103 663,373 1,270

Fund Balances, July 1, 2016 777,623 777,624 Fund Balances, June 30, 2017 $ $ 1,439,726 $ 1,440,997 $ 1,270 GROSSMONT UNION HIGH SCHOOL DISTRICT Budgetary Comparison Schedule - Cafeteria Fund For the Fiscal Year Ended June 30, 2017

Variance with Budgeted Amounts Actual Final Budget - Original Final (Budgetary Basis) Pos (Neg) Revenues Federal $ 4,759,600 $ 4,996,698 $ 5,587,205 $ 590,507 Other State 374,550 351,186 372,082 20,896 Other Local 2,083,173 2,068,660 2,010,546 (58,114) Total Revenues 7,217,323 7,416,544 7,969,833 553,289 Expenditures Current: Classified Salaries 3,143,444 3,132,874 3,147,380 (14,506) Employee Benefits 1,070,492 1,093,660 1,098,599 (4,939) Books and Supplies 2,855,793 2,599,905 2,999,482 (399,577) Services and Other Operating Expenditures 414,028 378,841 401,245 (22,404) Transfers of Indirect Costs 349,521 352,570 360,635 (8,065) Capital Outlay 55,000 Total Expenditures 7,888,278 7,557,850 8,007,341 (449,491) Excess (Deficiency) of Revenues Over (Under) Expenditures (670,955) (141,306) (37,508) 103,798 Fund Balance,July 1, 2016 2,396,635 2,332,951 2,332,951 Fund Balance, June 30, 2017 $ 1,725,680 $ 2,191,645 $ 2,295,443 $ 103,798 GROSSMONT UNION HIGH SCHOOL DISTRICT Budgetary Comparison Schedule - Building Fund For the Fiscal Year Ended June 30, 2017

Variance with Budgeted Amounts Actual Final Budget - Original Final (Budgetary Basis) Pos (Neg) Revenues Other Local $ 112,500 $ 586,551 $ 703,446 $ 116,895 Total Revenues 112,500 586,551 703,446 116,895 Expenditures Current: Classified Salaries 579,910 579,910 481,905 98,005 Employee Benefits 222,957 222,957 180,195 42,762 Books and Supplies 7,700 683,290 726,974 (43,684) Services and Other Operating Expenditures 212,884 214,344 358,297 (143,953) Capital Outlay 1,136,000 8,035,869 14,000,019 [5,964,150) Total Expenditures 2,159,451 9,736,370 15,747,390 (6,011,020) Excess (Deficiency) of Revenues Over (Under) Expenditures (2,046,951) (9,149,819) (15,043,944) (5,894,125) Other Financing Sources and Uses Proceeds from general obligation bonds 61,310,000 61,310,000 Total Other Financing Sources and Uses 61,310,000 61,310,000

Excess (Deficiency) of Revenues and Other Financing Sources Over (Under) Expenditures and Other Financing Uses (2,046,951) 52,160,181 46,266,056 (5,894,125) Fund Balance, July 1, 2016 45,842,745 46,350,831 46,519,565 168,734 Fund Balance, June 30, 2017 $ 43,795,794 $ 98,511,012 $ 92,785,621 $ (5,725,391) GROSSMONT UNION HIGH SCHOOL DISTRICT Budgetary Comparison Schedule - Capital Facilities Fund For the Fiscal Year Ended June 30, 2017

Variance with Budgeted Amounts Actual Final Budget - Original Final (Budgetary Basis) Pos (Neg) Revenues Other Local $ 809,000 $ 670,000 $ 861,145 $ 191,145 Total Revenues 809,000 670,000 861,145 191,145 Expenditures Current: Classified Salaries 8,672 8,672 18,258 (9,586) Employee Benefits 3,599 3,599 7,577 (3,978) Services and Other Operating Expenditures 51 (51) Capital Outlay 3,000,000 242,628 147,938 94,690 Total Expenditures 3,012,271 254,899 173,824 81,075 Excess (Deficiency) of Revenues Over (Under) Expenditures (2,203,271) 415,101 687,321 272,220 Fund Balance, July 1, 2016 2,645,860 3,128,836 3,128,837 1 Fund Balance, June 30, 2017 $ 442,589 $ 3,543,937 $ 3,816,158 $ 272,221 GROSSMONT UNION HIGH SCHOOL DISTRICT Budgetary Comparison Schedule - County School Facilities Fund For the Fiscal Year Ended June 30, 2017

Variance with Budgeted Amounts Actual Final Budget- Original Final (Budgetary Basis) Pos (Neg) Revenues Other Local $ 150,000 $ 150,000 $ 227,263 $ 77,263 Total Revenues 150,000 150,000 227,263 77,263 Expenditures Current: Books and Supplies 510,913 685,600 685,601 (1) Services and Other Operating Expenditures 3,340 3,340 Capital Outlay 29,176,497 13,965,451 12,067,807 1,897,644 Total Expenditures 29,687,410 14,654,391 12,756,748 1,897,643 Excess (Deficiency) of Revenues Over (Under) Expenditures (29,537,410) (14,504,391) (12,529,485) 1,974,906 Fund Balance, July 1, 2016 36,346,671 28,878,684 28,878,684 Fund Balance, June 30, 2017 $ 6,809,261 $ 14,374,293 $ 16,349,199 $ 1,974,906 GROSSMONT UNION HIGH SCHOOL DISTRICT Budgetary Comparison Schedule - Special Reserve for Capital Outlay Fund For the Fiscal Year Ended June 30, 2017

Variance with Budgeted Amounts Actual Final Budget - Original Final (Budgetary Basis) Pos (Neg) Revenues Other State $ 650,000 $ 995,202 $ 995,202 $ Other Local 1,837,771 4,755,805 3,729,729 (1,026,076) Total Revenues 2,487,771 5,751,007 4,724,931 [1,026,076) Expenditures Current: Classified Salaries 4,000 25,604 25,091 513 Employee Benefits 980 13,066 12,789 277 Books and Supplies 187,976 191,161 (3,185) Services and Other Operating Expenditu.res 234,020 609,154 445,129 164,025 Other Outgo 345,916 345,916 Capital Outlay 4,540,000 3,728,335 3,637,381 90,954 Total Expenditures 4,779,000 4,910,051 4,311,551 598,500 Excess (Deficiency) of Revenues Over (Under) Expenditures (2,291,229) 840,956 413,380 ( 427,5 76) Other Financing Sources and Uses Interfund Transfers Out (50,000) (50,000) (63,335) (13,335) Total Other Financing Sources and Uses [50,000J [50,000J (63,335) (13,335) Excess (Deficiency) of Revenues and Other Financing Sources Over (Under) Expenditures and Other Financing Uses (2,341,229) 790,956 350,045 (440,911) Fund Balance, July 1, 2016 4,701,110 3,751,228 3,751,228 Fund Balance,June 30, 2017 $ 2,359,881 $ 4,542,184 $ 4,101,273 $ (440,911) GROSSMONT UNION HIGH SCHOOL DISTRICT Budgetary Comparison Schedule - Bond Interest and Redemption Fund For the Fiscal Year Ended June 30, 2017

Variance with Budgeted Amounts Actual Final Budget - Original Final* (Budgetary Basis) Pos (Neg) Revenues Federal $ $ $ 1,170,126 $ 1,170,126 Other State 295,783 295,783 Other Local 24,758,695 24,758,695 27,782,082 3,023,387 Total Revenues 24,758,695 24,758,695 29,247,991 4,489,296 Expenditures Debt Service 28,660,448 28,660,448 29,078,388 (417,940) Total Expenditures 28,660,448 28,660,448 29,078,388 (417,940) Excess (Deficiency) of Revenues Over (Under) Expenditures (3,901,753) (3,901,753) 169,603 4,071,356 Other Financing Sources and Uses Proceeds from refunding bonds 90,435,000 90,435,000 Premium on bond issuance 8,295,550 8,295,550 Transfers to escrow agent for defeased debt (93,056,304) (93,056,304) Total Other Financing Sources and Uses 5,674,246 5,674,246 Excess (Deficiency) of Revenues and Other Financing Sources Over (Under) Expenditures and Other Financing Uses (3,901,753) (3,901,753) 5,843,849 9,745,602 Fund Balance, July 1, 2016 28,412,337 28,412,337 34,579,157 Fund Balance, June 30, 2017 $ 24,510,584 $ 24,510,584 $ 40,423,006 $ 9,745,602

*The District receives information from the San Diego County Office of Education. Budget is not updated until actual figures are known. GROSSMONT UNION HIGH SCHOOL DISTRICT Budgetary Comparison Schedule - Internal Service Fund For the Fiscal Year Ended June 30, 2017

Variance with Budgeted Amounts Actual Final Budget- Original Final (Budgetary Basis) Pos (Neg) Revenues Other Local $ 4,854,447 $ 4,859,947 $ 5,184,571 $ 324,624 Total Revenues 4,854,447 4,859,947 5,184,571 324,624 Expenditures Current: Services and Other Operating Expenditures 6,854,447 6,854,447 7,250,965 (396,518) Total Expenditures 6,854,447 6,854,447 7,250,965 (396,518) Excess (Deficiency) of Revenues Over (Under) Expenditures (2,000,000) (1,994,500) (2,066,394) (71,894) Fund Balance, July 1, 2016 (15,998,473) (15,249,973) (15,249,973) Fund Balance, June 30, 2017 $ (17,998,473) $ (17,244,4 73) $ (17,316,367) $ (71,894) GROSSMONT UNION HIGH SCHOOL DISTRICT Schedule ofAverage Daily Attendance For the Fiscal Year Ended June 30, 2017

Second Period Annual Report Report Certificate No. Certificate No. (20BD1AA6] (470657AD] Regular ADA: Ninth through Twelfth 15,715.21 15,603.43

Special Education, Nonpublic, Nonsectarian Schools: Ninth through Twelfth 127.06 131.10

Total ADA 15,842.27 15,734.53

Classes for Adults: Adults in Correctional Facilities 606.23 838.32 GROSSMONT UNION HIGH SCHOOL DISTRICT Schedule of Instructional Time For the Fiscal Year Ended June 30, 2017

2016-17 Number of Days Actual Traditional Grade Level Requirement Minutes Calendar Status

Grade 9 64,800 64,898 180 Complied Grade 10 64,800 64,898 180 Complied Grade 11 64,800 64,898 180 Complied Grade 12 64,800 64,898 180 Complied GROSSMONT UNION HIGH SCHOOL DISTRICT Schedule of Financial Trends and Analysis For the Fiscal Year Ended June 30, 2017

(Budget) General Fund 2018 2 2017 3 2016 2015

Revenues and other financing sources $ 208,055,604 $ 216,555,235 $ 218,053,006 $ 187,737,170 Expenditures and other financing uses 209,206,663 215,247,814 208,774,244 193,244,379

Change in fund balance (deficit) (1,151,059) 1,307,421 9,278,762 (5,507,209)

Ending fund balance $ 22,444,683 $ 23,595,742 $ 22,288,321 $ 13,009,559

Available reserves $ 9,414,300 $ 9,686,186 $ 9,394,841 $ 7,255,595

Available reserves as a percentage of total outgo 4.So/o 4.So/o 4.So/o 3.8o/o

Total long-term debt $ 878,480,307 $ 883,304,592 $ 758,707,444 $ 728,674,584

Average daily attendance at P-2 1 15,744 15,842 16,012 16,435

The General Fund balance has increased by $10.6 million over the past two years. The fiscal year 2017-18 adopted budget projects a decrease of $1.15 million. For a district of this size, the state recommends available reserves of at least 3o/o of total general fund expenditures, transfers out, and other uses (total outgo).

The District has incurred an operating deficit in only one of the past three years, but anticipates incurring an operating deficit during the 2017-18 fiscal year. Long-term debt has increased by $154.6 million over the past tvvo years.

Average daily attendance has decreased by 593 over the past tvvo years. An additional decrease of 98 ADA is anticipated during fiscal year 2017-18.

1 Excludes Adult Education ADA.

2 Revised Final Budget September, 2017.

3 The actual amounts reported in this schedule are for the General Fund only, and do not agree with the amounts reported on the Statement of Revenues, Expenditures, and Changes in Fund Balances because the amounts on that schedule include the financial activity of the Special Reserve Fund for Other Than Capital Outlay, in accordance with the fund type definitions promulgated by GASB Statement No. 54. GROSSMONT UNION HIGH SCHOOL DISTRICT Reconciliation ofAnnual Financial and Budget Report with Audited Financial Statements For the Fiscal Year Ended June 30, 2017

There were no differences between the Annual Financial and Budget Report and the Audited Financial Statements in any funds. GROSSMONT UNION HIGH SCHOOL DISTRICT Schedule of Expenditures of Federal Awards For the Fiscal Year Ended June 30, 2017

Pass-Through Federal Entity Federal Grantor/Pass-Through CFDA Identifying Cluster Federal Grantor/Program or Cluster Title Number Number Expenditures Expenditures

Federal Programs: U.S. Department of Agriculture: Passed through California Dept. of Education (CDE): School Breakfast Program - Basic 10.553 13525 $ 7,214 School Breakfast Program - Especially Needy 10.553 13526 1,301,470 National School Lunch Program 10.555 13523 3,334,694 USDA Donated Foods 10.555 N/A 316,733 Total Child Nutrition Cluster $ 4,960,111 Child and Adult Care Food Program 10.558 13393 575,685 Cash in Lieu of Commodities 10.558 N/A 51,409 Total Child and Adult Care Food Program Cluster 627,094 Total U.S. Department of Agriculture 5,587,205

U.S. Department of Labor Passed through California Dept. of Education (CDE): Workforce Investment Act- Youth Program 17.259 10055 1,346,496 Total U.S. Department of Labor 1,346,496

U.S. Department of Education: Passed through California Dept. of Education (CDE): Adult Basic Education and ESL 84.002A 14508 380,418 Adult Secondary Education 84.002 13978 429,688 English Literacy and Civics Education 84.002A 14109 192,856 Adult Education, Institutionalized Adults, Sec. 225 84.002 13971 72,216 Total Adult Education - State Grants Cluster 1,075,178 No Child Left Behind (NCLB): Title I, Part A, Basic Grants, Low-Income and Neglected 84.010 14329 4,862,740 Title I, Part G, Advanced Placement Test Reimbursement Program 84.3308 14831 67,930 Title II, Part A, Supporting Effective Instruction 84.367 14341 490,621 Title III, Immigrant Education Program 84.365 15146 55,380 Title III, Limited English Proficiency 84.365 14346 190,805 Total English Language Acquisition State Grants Cluster 246,185 Title IV, Part 8, 21st CCLC - High School ASSETs 84.287 14535 814,295 Carl D. Perkins Career and Technical Education: Secondary, Sec.131 84.048 14894 557,903 Carl D. Perkins Career and Technical Education: Adult, Sec. 132 84.048 14893 200,406 Total Career and Technical Education - Basic Grants to States Cluster 758,309 Department of Rehabilitation: Workability II, Transition Partnership 84.126 10006 356,833 Passed through East County SELPA: Individuals with Disabilities Education Act (IDEA): Basic Local Assistance Entitlement 84.027 13379 4,077,892 Mental Health Services 84.027 14468 579,888 Total Special Education (IDEA) Cluster 4,657,780 Total U.S. Department of Education 13,329,871

U.S. Department of Health & Human Services: Passed through California Dept. of Education (CDE): Medi-Cal Billing Option 93.778 10013 804,484 Medi-Cal Administrative Activities (MAA) N/A 10060 55,448 Total Medicaid Cluster 859,932 Refugee Children Supplemental Assistance Program 93.576 24791 69,196 Total U.S. Department of Health & Human Services 929,128

Total Expenditures of Federal Awards $ 21,192,700

Of the Federal expenditures presented in the schedule, the District provided no Federal awards to recipients. GROSSMONT UNION HIGH SCHOOL DISTRICT Schedule of Charter Schools For the Fiscal Year Ended June 30, 2017

Charter School Inclusion in Financial Name Number Status Statements Helix Charter High School 0150 Active Not included Steele Canyon Charter High School 0893 Active Not included GROSSMONT UNION HIGH SCHOOL DISTRICT Note to the Supplementary Information June 30, 2017

NOTE 1 - PURPOSE OF SCHEDULES

Combining Statements - Non-Major Funds These statements provide information on the District's non-major funds.

Statement of Changes in Assets and Liabilities - Agency Funds This schedule provides information about activities of the agency type fiduciary funds.

Budgetary Comparison Schedules The budgetary comparison schedules present both the original and final appropriated budgets for the reporting period as well as actual inflows, outflows, and balances, stated on the District's budgetary basis.

Schedule of Average Daily Attendance (ADA) Average daily attendance (ADA) is a measurement of the number of pupils attending classes of the District. The purpose of attendance accounting from a fiscal standpoint is to provide the basis on which apportionments of State funds are made to school districts. This schedule provides information regarding the attendance of students at various grade levels and in different programs.

Schedule of Instructional Time This schedule presents information on the amount of instructional time offered by the District and whether the District complied with the provisions of Education Code Sections 46200 through 46206.

The District has participated in the Incentives for Longer Instructional Day and Longer Instructional Year. Since the District has not met its target funding, the District must maintain its instructional minutes at the 1986-87 requirement, as required by Education Code section 46201.

Schedule of Financial Trends and Analysis This schedule discloses the District's financial trends by displaying past years' data along with current year budget information. These financial trend disclosures are used to evaluate the District's ability to continue as a going concern for a reasonable period of time.

Reconciliation of Annual Financial and Budget Report with Audited Financial Statements This schedule provides the information necessary to reconcile the fund balance of all funds reported on the Unaudited Actual financial report to the audited financial statements.

Schedule of Expenditures of Federal Awards The schedule of expenditures of Federal awards includes the Federal grant activity of the District and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of the Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of the financial statements. The District did not elect to use the ten percent de minimis indirect cost rate. GROSSMONT UNION HIGH SCHOOL DISTRICT Note to the Supplementary Information June 30, 2017

NOTE 1- PURPOSE OF SCHEDULES (continued)

Schedule of Expenditures of Federal Awards ( continued) The following schedule provides a reconciliation between revenues reported on the Statement of Revenues, Expenditures, and Changes in Fund Balances and the related expenditures reported on the Schedule of Expenditures of Federal Awards. The reconciling amounts represent Federal funds that have been recorded as revenues that have not been expended by June 30, 2017.

CFDA Number Amount Total Federal Revenues from the Statement of Revenues, Expenditures, and Changes in Fund Balances $ 22,232,132

Federal interest subsidies not reported on SEFA (1,170,126)

Differences between Federal Revenues and Expenditures: Medi-Cal Billing Option 93.778 364,300 Medi-Cal Administrative Activities 93.778 (219,940) Title I, Part G, Advanced Placement Test Reimbursement Program 84.3308 (13,666)

Total Schedule ofExpenditures of Federal Awards $ 21,192,700

Schedule of Charter Schools This schedule lists all charter schools sponsored by the District, and displays information for each charter school on whether or not the charter school is included in the District audit. Other Independent Auditors' Reports (This page intentionally left blank) INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

Governing Board Grossmont Union High School District El Cajon, California

We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Grossmont Union High School District as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise Grossmont Union High School District's basic financial statements, and have issued our report thereon dated November 20, 2017.

Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Grossmont Union High School District's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Grossmont Union High School District's internal control. Accordingly, we do not express an opinion on the effectiveness of the Grossmont Union High School District's internal control.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the District's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

79 Compliance and Other Matters As part of obtaining reasonable assurance about whether Grossmont Union High School District's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

Murrieta, California November 20, 2017

80 INDEPENDENT AUDITORS' REPORT ON STATE COMPLIANCE

Governing Board Grossmont Union High School District El Cajon, California

Report on State Compliance We have audited Grossmont Union High School District's compliance with the types of compliance requirements described in the 2016-17 Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting that could have a direct and material effect on each of the Grossmont Union High School District's state government programs as noted on the following page for the fiscal year ended June 30, 2017.

Management's Responsibility Management is responsible for compliance with state laws, regulations, and the terms and conditions of its State programs.

Auditors' Responsibility Our responsibility is to express an opinion on compliance for each of Grossmont Union High School District's state programs based on our audit of the types of compliance requirements referred to on the following page. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the 2016-17 Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to on the following page that could have a direct and material effect on a state program occurred. An audit includes examining, on a test basis, evidence about Grossmont Union High School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion on compliance for each state program. However, our audit does not provide a legal determination of Grossmont Union High School District's compliance.

In connection with the audit referred to above, we selected and tested transactions and records to determine the District's compliance with the State laws and regulations applicable to the following items:

Procedures Description Performed Attendance Yes Teacher Certification and Misassignments Yes Kindergarten Continuance Not Applicable Independent Study Yes Continuation Education No (see below) Instructional Time Yes Instructional Materials Yes Ratio of Administrative Employees to Teachers Yes

81 Procedures Description Performed Classroom Teacher Salaries Yes Early Retirement Incentive Not Applicable Gann Limit Calculation Yes School Accountability Report Card Yes Juvenile Court Schools Not Applicable Middle or Early College High Schools Yes K-3 Grade Span Adjustment Not Applicable Transportation Maintenance of Effort Yes Mental Health Expenditures Yes Educator Effectiveness Yes California Clean Energy Jobs Act Yes After School Education and Safety Program Not Applicable Proper Expenditure of Education Protection Account Funds Yes Un duplicated Local Control Funding Formula Pupil Counts Yes Local Control and Accountability Plan Yes Independent Study- Course Based Not Applicable Immunizations Not Applicable Charter Schools: Attendance Not Applicable Mode of Instruction Not Applicable Nonclassroom-Based Instruction/Independent Study Not Applicable Determination of Funding for Nonclassroom-Based Instruction Not Applicable Annual Instructional Minutes - Classroom Based Not Applicable Charter School Facility Grant Program Not Applicable

We did not perform testing for continuation education because the ADA was under the level that requires testing.

Unmodified Opinion on Compliance with State Programs In our opinion, Grossmont Union High School District complied, in all material respects, with the types of compliance requirements referred to above for the year ended June 30, 2017.

Other Matter(s) The results of our auditing procedures disclosed instances of noncompliance with the compliance requirements referred to previously, which are required to be reported in accordance with the 2016-17 Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting, and which are described in the accompanying schedule of findings and questioned costs as Finding 2017-001. Our opinion on each state program is not modified with respect to these matters.

District's Response to Finding Grossmont Union High School District's response to the compliance finding identified in our audit is described in the accompanying schedule of findings and questioned costs. Grossmont Union High School District's response was not subjected to the auditing procedures in the audit of compliance and, accordingly, we express no opinion on the response.

Murrieta, California November 20, 2017

82 INDEPENDENT AUDITORS' REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE

Governing Board Grossmont Union High School District El Cajon, California

Report on Compliance for Each Major Federal Program We have audited Grossmont Union High School District's compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of Grossmont Union High School District's major federal programs for the year ended June 30, 2017. Grossmont Union High School District's major federal programs are identified in the summary of auditors' results section of the accompanying schedule of findings and questioned costs.

Management's Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs.

Auditors' Responsibility Our responsibility is to express an opinion on compliance for each of Grossmont Union High School District's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Grossmont Union High School District's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of Grossmont Union High School District's compliance.

Opinion on Each Major Federal Program In our opinion, Grossmont Union High School District complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2017.

83 Report on Internal Control Over Compliance Management of Grossmont Union High School District is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered Grossmont Union High School District's internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the District's internal control over compliance.

A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.

Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose.

Murrieta, California November 20, 2017

84 Findings and Questioned Costs (This page intentionally left blank) GROSSMONT UNION HIGH SCHOOL DISTRICT Schedule ofAudit Findings and Questioned Costs For the Fiscal Year Ended June 30, 2017

Section I - Summary of Auditor's Results Financial Statements

Type of auditor's report issued Unmodified Internal control over financial reporting: Material weakness(es) identified? No Significant deficiency(s) identified not considered to be material weaknesses? None reported Noncompliance material to financial statements noted? No

Federal Awards

Internal control over major programs: Material weakness(es) identified? No Significant deficiency(s) identified not considered to be material weaknesses? None reported Type of auditor's report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with Uniform Guidance Sec. 200.516 No Identification of major programs: CFDA Numbers Name of Federal Program or Cluster 84.010 Title I, Part A, Basic Grants

84.287 Title IV Part 8 1 21st Century Community Learning Centers Dollar threshold used to distinguish between Type A and Type B programs: $ 750,000 Auditee qualified as low-risk auditee? Yes

State Awards

Type of auditor's report issued on compliance for state programs: Unmodified GROSSMONT UNION HIGH SCHOOL DISTRICT Schedule ofAudit Findings and Questioned Costs For the Fiscal Year Ended June 30, 2017

SECTION II - FINANCIAL STATEMENT FINDINGS

This section identifies the significant deficiencies, material weaknesses, and instances of noncompliance related to the financial statements that are required to be reported in accordance with Government Auditing Standards. Pursuant to Assembly Bill (AB) 3627, all audit findings must be identified as one or more of the following categories:

Five Digit Code AB 3627 Finding Types 10000 Attendance 20000 Inventory of Equipment 30000 Internal Control 40000 State Compliance 42000 Charter School Facilities Programs 50000 Federal Compliance 60000 Miscellaneous 61000 Classroom Teacher Salaries 62000 Local Control Accountability Plan 70000 Instructional Materials 71000 Teacher Misassignments 72000 School Accountability Report Card

There were no financial statement findings in 2016-17. GROSSMONT UNION HIGH SCHOOL DISTRICT Schedule ofAudit Findings and Questioned Costs For the Fiscal Year Ended June 30, 2017

SECTION Ill - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

This section identifies the audit findings required to be reported by the Uniform Guidance, Section 200.516 ( e.g., significant deficiencies, material weaknesses, and instances of noncompliance, including questioned costs).

There were no federal award findings or questioned costs in 2016-17. GROSSMONT UNION HIGH SCHOOL DISTRICT Schedule ofAudit Findings and Questioned Costs For the Fiscal Year Ended June 30, 2017

SECTION IV - STATE AWARD FINDINGS AND QUESTIONED COSTS

This section identifies the audit findings pertaining to noncompliance with state program rules and regulations.

Finding 2 017-001: CALPADS Unduplicated Pupil Counts ( 40000)

Criteria: Supplemental and concentration grant amounts are calculated based on the percentage of unduplicated pupils" enrolled in the LEA on Census Day (first Wednesday in October). The percentage equals:

• Unduplicated count of pupils who (1) are English learners, (2) meet income or categorical eligibility requirements for free or reduced-price meals under the National School Lunch Program, or (3) are foster youth. "Unduplicated count" means that each pupil is counted only once even if the pupil meets more than one of these criteria (EC sections 257 4(b )(2) and 42238.02(b )(1)). • Divided by total enrollment in the LEA (EC sections 2574(b)(l)(B) and 42238.02(b)(5)). All pupil counts are based on Fall 1 certified enrollment reported in the CALPADS as of Census Day.

Condition: During our testing of the English Learner (EL) and Free and Reduced Price Meal (FRPM) eligible students reported in the CALPADS 1.17 and 1.18 reports, we noted 19 students who were incorrectly classified as FRPM eligible. These students did not have an application or income eligibility form on file to support the designation.

Questioned Cost: $6,320. This was determined by calculating the difference between the District's original total LCFF revenues and the LCFF revenues adjusted for the decreased in the unduplicated pupil count.

Cause: The CALPADS reports were not updated in a timely manner to correct student changes in the 2016-17 year.

Effect: The unduplicated pupil counts in the CALPADS 1.17 and 1.18 reports should be adjusted for the following changes: Adjusted based on eligibility for: CALPADS FRPM Adjusted Total Program/Site: El Capitan High 806 (14) 792 IDEA Center 105 (1) 104 Grossmont High 1,189 (4) 1,185 Aggregate remaining sites 7,600 7,600 District-wide 9,700 (19) 9,681 Total enrollment of 17,034 was not adjusted based on the results of our procedures.

Recommendation: We recommend that the District implement a review procedure of the CALPADS information prior to the reports submission to the California Department of Education.

Views of Responsible Officials: The District has changed collection efforts to ensure unduplicated pupil data is returned timely and accurately. Following the initial certification of the 2017 CALPADS Fall 2 submission, the District will select a sample of students with non-direct certifications. The sample students will be tested for compliance using food services meal applications and income survey source material. Any discrepancies will be corrected. GROSSMONT UNION HIGH SCHOOL DISTRICT Summary Schedule of Prior Audit Findings For the Fiscal Year Ended June 30, 2017

Original Finding No. Finding Code Recommendation Current Status

Finding 2016-001: Supplemental and concentration grant amounts are 40000 We recommend that the District implement a review Not CALPADS calculated based on the percentage of "unduplicated procedure of the CALPADS information prior to the report's Implemented. Unduplicated pupils" enrolled in the LEA on Census Day (first submission to the California Department of Education. See Finding Pupil Counts Wednesday in October). The percentage equals: 2017-001.

• Unduplicated count of pupils who (1) are English learners, (2) meet income or categorical eligibility requirements for free or reduced-price meals under the National School Lunch Program, or (3) are foster youth. "Unduplicated count" means that each pupil is counted only once even if the pupil meets more than one of these criteria (EC sections 25 7 4(b )(2) and 42238.02(b )(1 )).

• Divided by total enrollment in the LEA ( EC sections 2574(b)(l)(B) and 42238.02(b)(5)). All pupil counts are based on Fall 1 certified enrollment reported in the CALPADS as of Census Day.

During our testing of the English Learner (EL) and Free and Reduced Price Meal (FRPM) eligible students reported in the CALPADS 1.17 and 1.18 reports, we noted 41 students who were incorrectly classified as FRPM eligible. These students did not have an application or income eligibility form on file to support the designation. (This page intentionally left blank) Governing Board Grossmont Union High School District El Cajon, California

In planning and performing our audit of the basic financial statements of Grossmont Union High School District for the fiscal year ending June 30, 2017, we considered its internal control structure in order to determine our auditing procedures for the purpose of expressing our opinion on the basic financial statements and not to provide assurance on the internal control structure.

However, during our audit we noted matters that are an opportunity for strengthening internal controls and operating efficiency. The following items represent conditions noted by our audit that we consider important enough to bring to your attention. This letter does not affect our report dated November 20, 2017, on the financial statements of Grossmont Union High School District.

ASSOCIATED STUDENT BODY ACCOUNTS

Observation: During our cash receipts testing, we noted instances where cash collections lacked adequate supporting documentation to trace the receipt from the point of collection. Without supporting documentation, we could not verify whether all cash collected had been deposited intact and into the correct ASB account on a timely basis. Sound internal controls for handling cash discourage theft of ASB funds and protect those who handle the cash. It is important to tie all proceeds to the specific fundraiser from which they were generated and to ensure that all proceeds from an event are turned in and properly accounted for.

Recommendation: We recommend that before any events are held, control procedures should be established by the club advisors that will allow for the reconciliation between money collected and fundraiser sales. In the event that prenumbered receipt books are utilized, it is important that finance technicians keep a log of receipt numbers, account for all receipts issued, and reconcile the receipts to the funds collected to ensure that all funds are accounted for.

Observation: In our test of cash disbursements, we noted disbursements that were either not approved by a district representative, the ASB advisor, and/or a student representative or were not approved prior to being incurred. Education Code Section 48933(b) requires all expenditures from ASB funds be authorized by a student representative, an advisor, and a district representative (usually a principal or vice-principal) prior to disbursing the funds.

Recommendation: As a "best practice", approval by required parties should be obtained before the actual commitment to purchase the items in order to ensure the expense is a proper use of student-body funds and falls within budgetary guidelines.

90 ASSOCIATED STUDENT BODY ACCOUNTS (continued)

Observation: During our test of disbursements, we found several disbursements which were missing supporting documentation such as an invoice or receipt. Issuing payment without supporting documentation can provide the opportunity for the misappropriation of student funds.

Recommendation: Issuing payment without supporting documentation can provide the opportunity for the misappropriation of student funds. We recommend that the sites require all appropriate supporting documentation be submitted prior to issuing payment to ensure that student funds are being properly spent.

Observation: Through inquiry and observation at Monte Vista High, El Capitan High and Grossmont High, we noted that goods are not exclusively delivered to the school site, and that employees are receiving the goods at their personal residence. This is a problem because it allows for the misappropriation of the goods.

Recommendation: We recommend that all goods ordered for the ASB be delivered to the school site.

We will review the status of the current year comments during our next audit engagement.

Murrieta, California November 20, 2017

91 APPENDIXC

PROPOSED FORM OF OPINION OF BOND COUNSEL

[ Closing Date]

Governing Board Grossman! Union High School District El Cajon, California

Grossman! Union High School District 2018 General Obligation Bonds (Election of 2016, Series B-1) (Federally Taxable)

Grossman! Union High School District 2018 General Obligation Bonds (Election of 2016, Series B-2) (Final Opinion)

Ladies and Gentlemen:

We have acted as bond counsel to the Grossman! Union High School District (the "District"), which is located in the County of San Diego, California (the "County"), in connection with the issuance by the District of $4,510,000 aggregate principal amount of bonds designated as "Grossman! Union High School District 2018 General Obligation Bonds (Election of 2016, Series B-1) (Federally Taxable)" (the "Series B-1 Bonds") and $38,490,000 aggregate principal amount of bonds designated as "Grossman! Union High School District 2018 General Obligation Bonds (Election of 2016, Series B-2)" (the "Series B-2 Bonds" and, together with the Series B-1 Bonds, the "Bonds"). The Bonds are issued under and pursuant to a resolution of the Governing Board of the District adopted on September 13, 2018 (the "Resolution") and a Paying Agent Agreement, dated as of October 1, 2018 (the "Paying Agent Agreement"), by and between the District and the County of San Diego, California, Office of the Treasurer-Tax Collector, as paying agent (the "Paying Agent"). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Resolution or the Paying Agent Agreement.

In such connection, we have reviewed the Paying Agent Agreement, the Resolution, the resolution of the County adopted on October 9, 2018 (the "County Resolution"), the tax certificate for the Bonds of the District, dated the date hereof (the "Tax Certificate"), certificates of the District, the Paying Agent, the County and others, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein.

The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof Accordingly, this letter speaks only as of its date and is not intended to, and may not, be relied upon or otherwise used in connection with any such actions, events or matters. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the District. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents and of the legal conclusions contained in the opinions, referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Paying Agent Agreement, the Resolution, the County Resolution and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Series B-2 Bonds to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the Bonds, the Paying Agent Agreement, the Resolution, the County Resolution and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, receivership,

C-1 reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors' rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases, and to the limitations on legal remedies against school districts and counties in the State of California. We express no opinion with respect to any indemnification, contribution, liquidated damages, penalty (including any remedy deemed to constitute a penalty), right of set-off, arbitration, judicial reference, choice of law, choice of forum, choice of venue, non-exclusivity of remedies, waiver or severability provisions contained in the foregoing documents, nor do we express any opinion with respect to the state or quality of title to or interest in any of the assets described in or as subject to the lien of the Resolution, or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on, any such assets. Our services did not include financial or other non-legal advice. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Bonds and express no opinion with respect thereto.

Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following op1n1ons:

1. The Bonds constitute the valid and binding obligations of the District.

2. The Resolution has been duly and legally adopted and constitutes the valid and binding obligation of the District.

3. The Board of Supervisors of the County has power and is obligated to levy ad valorem taxes without limitation as to rate or amount upon all property within the District's boundaries subject to taxation by the District (except certain personal property which is taxable at limited rates) for the payment of the Bonds and the interest thereon.

4. Interest on the Series B-2 Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986. Interest on the Series B-2 Bonds is not a specific preference item for purposes of the federal alternative minimum tax. We observe that interest on the Series B-1 Bonds is not excluded from gross income for federal income tax purposes under Section 103 of the Code. Interest on the Bonds is exempt from State of California personal income taxes. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Bonds.

Faithfully yours,

ORRICK, HERRINGTON & SUTCLIFFE LLP

C-2 APPENDIXD

PROPOSED FORM OF CONTINUING DISCLOSURE CERTIFICATE

Grossman! Union High School District Grossman! Union High School District 2018 General Obligation Bonds 2018 General Obligation Bonds (Election of 2016, Series B-1) (Election of 2016, Series B-2) (Federally Taxable)

This Continuing Disclosure Certificate (the "Disclosure Certificate"), dated October 24, 2018, is executed and delivered by the Grossman! Union High School District (the "District") in connection with the issuance of the above-named bonds (the "Bonds"). The Bonds are being issued pursuant to a resolution (the "Resolution") adopted by the Governing Board of the District on September 13, 2018, and in accordance with the terms of a Paying Agent Agreement, dated as of October 1, 2018 (the "Paying Agent Agreement"), by and between the District and the County of San Diego, California, Office of the Treasurer-Tax Collection (the "Paying Agent"). The District covenants and agrees as follows:

SECTION 1 Purpose of the Disclosure Certificate This Disclosure Certificate is being executed and delivered by the District for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with Securities and Exchange Commission ("S.E. C. ") Rule l 5c2-l 2(b )(5).

SECTION 2. Definitions. In addition to the definitions set forth in the Paying Agent Agreement, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:

"Annual Report" shall mean any Annual Report provided by the District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.

"Beneficial Owner" shall mean any person which has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries).

"Dissemination Agent" shall mean the District, or any successor Dissemination Agent designated in writing by the District and which has filed with the District a written acceptance of such designation.

"Holder" shall mean the person in whose name any Bond shall be registered.

"Listed Events" shall mean any of the events listed in Section 5(a) or (b) of this Disclosure Certificate.

"MSRB" shall mean the Municipal Securities Rulemaking Board or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the S.E.C., filings with the MSRB are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at http://emma.msrb.org

"Participating Underwriter" shall mean the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds.

"Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

SECTION 3. Provision of Annual Reports.

(a) The District shall, or shall cause the Dissemination Agent to, not later than nine months after the end of the District's fiscal year ( currently ending June 30), commencing with the report for the fiscal year of the District ending June 30, 2018 (which is due not later than April 1, 2019), provide to the Participating Underwriter and the

D-1 MSRB an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. The Armual Report must be submitted in electronic format, accompanied by such identifying information as is prescribed by the MSRB, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate; provided, that the audited financial statements of the District may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the District's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5( e).

(b) Not later than 15 business days prior to said date, the District shall provide the Annual Report to the Dissemination Agent (if other than the District). If the District is unable to provide to the MSRB an Annual Report by the date required in subsection (a), the District shall send a notice to the MSRB in substantially the form attached as Exhibit A

(c) The Dissemination Agent shall (if the Dissemination Agent is other than the District), file a report with the District certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided to the MSRB.

SECTION 4. Content of Annual Reports. The District's Annual Report shall contain or include by reference the following:

* Audited financial statements of the District for the preceding fiscal year, prepared in accordance with the laws of the State of California and including all statements and information prescribed for inclusion therein by the Controller of the State of California. If the District's audited financial statements are not available by the time the Annual Report is required to be provided to the MSRB pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be provided to the MSRB in the same manner as the Annual Report when they become available.

To the extent not included in the audited financial statement of the District, the Annual Report shall also include the following:

* The District's approved annual budget for the then-current fiscal year; * Assessed value of taxable property in the District as shown on the most recent equalized assessment role;

* District outstanding debt; * If the County no longer includes the tax levy for payment of the Bonds in its Teeter Plan, the property tax levies, collections, and delinquencies for the District for the most recently completed fiscal year; and

* Top twenty property owners in the District for the then-current fiscal year, as measured by secured assessed valuation, the amount of their respective taxable value, and their percentage of total secured assessed value, if material.

Any or all of the items listed above may be set forth in one or a set of documents or may be included by specific reference to other documents, including official statements of debt issues of the District or related public entities, which are available to the public on the MSRB website. If the document included by reference is a final official statement, it must be available from the MSRB. The District shall clearly identify each such other document so included by reference.

D-2 SECTION 5. Reporting of Significant Events.

(a) The District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds not later than ten business days after the occurrence of the event:

1. Principal and interest payment delinquencies;

2. Unscheduled draws on debt service reserves reflecting financial difficulties;

3. Unscheduled draws on credit enhancements reflecting financial difficulties;

4. Substitution of credit or liquidity providers, or their failure to perform;

5. Adverse tax opinions or issuance by the Internal Revenue Service of proposed or final determination oftaxability or of a Notice of Proposed Issue (IRS Form 5701 TEB);

6. Tender offers;

7. Defeasances;

8. Rating changes; or

9. Bankruptcy, insolvency, receivership or similar event of the obligated person.

Note: for the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the US. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing govenunental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person.

(b) The District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material, not later than ten business days after the occurrence of the event:

I. Unless described in paragraph 5(a)(5), other material notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds;

2. Modifications to rights of Bond holders;

3. Optional, unscheduled or contingent Bond calls;

4. Release, substitution, or sale of property securing repayment of the Bonds;

5. Non-payment related defaults;

6. The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; or

D-3 7. Appointment of a successor or additional paying agent or the change of name of a paying agent.

(c) The District shall give, or cause to be given, in a timely manner, notice of a failure to provide the annual financial information on or before the date specified in Section 3, as provide in Section 3(b).

(d) Whenever the District obtains knowledge of the occurrence of a Listed Event described in Section 5(b ), the District shall determine if such event would be material under applicable federal securities laws.

(e) If the District learns of the occurrence of a Listed Event described in Section 5(a), or determines that knowledge of a Listed Event described in Section 5(b) would be material under applicable federal securities laws, the District shall within ten business days of occurrence file a notice of such occurrence with the MSRB in electronic format, accompanied by such identifying information as is prescribed by the MSRB. Notwithstanding the foregoing, notice of the Listed Event described in subsection (b )(3) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Holders of affected Bonds pursuant to the Resolution.

SECTION 6. Termination of Reporting Obligation. The District's obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(e).

SECTION 7. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the District pursuant to this Disclosure Certificate. The initial Dissemination Agent shall be the District.

SECTION 8. Amendment Waiver. Notwithstanding any other provision of this Disclosure Certificate, the District may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:

(a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, 5(a) or 5(b), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted;

(b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) The amendment or waiver does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bonds.

In the event of any amendment or waiver of a provision of this Disclosure Certificate, the District shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type ( or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5( c), and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles.

D-4 SECTION 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the District chooses to include any information in any Armual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the District shall have no obligation under this Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

SECTION 10. Default. In the event of a failure of the District to comply with any provision of this Disclosure Certificate any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under this Disclosure Certificate; provided, that any such action may be instituted only in Superior Court of the State of California in and for the County or in US. District Court in or nearest to the County. The sole remedy under this Disclosure Certificate in the event of any failure of the District to comply with this Disclosure Certificate shall be an action to compel performance.

SECTION 11. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.

IN WITNESS WHEREOF, the undersigned has executed and delivered this Continuing Disclosure Certificate on the date as first written above.

GROSSMONT UNION HIGH SCHOOL DISTRICT

By: ______Scott H. Patterson Deputy Superintendent, Business Services

D-5 EXHIBIT A

FORM OF NOTICE TO THE MUNICIPAL SECURITIES RULEMAKING BOARD OFFAIL URE TO FILE ANNUAL REPORT

Name of District: GROSSMONT UNION HIGH SCHOOL DISTRICT

Name of Bond Issue: GROSSMONT UNION HIGH SCHOOL DISTRICT 2018 GENERAL OBLIGATION BONDS (ELECTION OF 2016, SERIES B-1) (FEDERALLY TAXABLE)

GROSSMONT UNION HIGH SCHOOL DISTRICT 2018 GENERAL OBLIGATION BONDS (ELECTION OF 2016, SERIES B-2)

Date of Issuance: October 24, 2018

NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above-named Bonds as required by Section 4 of the Continuing Disclosure Certificate of the District, dated the Date of Issuance. [The District anticipates that the Annual Report will be filed by .]

Dated: ------

GROSSMONT UNION HIGH SCHOOL DISTRICT

By _____[~to~be~si~gn=e=d~o=n=w~if~f=ile=d~] _____

D-6 APPENDIXE

SAN DIEGO COUNTY INVESTMENT POOL

The following information concerning the Treasury Pool of San Diego County (the "Treasury Pool") has been provided by the Treasurer and has not been confirmed or verified by the District or the Underwriters. No representation is made herein as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof or that the information contained or incorporated hereby by reference is correct as ofany time subsequent to its date.

In accordance with Section 53600 et seq. of the Government Code of the State of California (the "Government Code"), the Treasurer manages funds deposited with it by the District. The County is required to invest such funds in accordance with Section 53635 et seq. of the Government Code. In addition, counties are required to establish their own investment policies which may impose limitations beyond those required by the Government Code.

All investments in the Treasurer's investment portfolio conform to the statutory requirements of Section 53635 et seq. of the Government Code, authorities delegated by the County Board of Supervisors and the Treasurer's investment policy.

General

Pursuant to a resolution adopted July 8, 1958, the Board of Supervisors delegated to the County Treasurer the authority to invest and reinvest funds of the County. Applicable law limits this delegation of authority to a one­ year period and must be renewed annually by action of the Board of Supervisors. In addition to funds of the County, funds of certain local agencies within the County, including school districts in the County, are required under state law to be deposited into County Treasury ("Involuntary Depositors"). In addition, certain agencies, such as cities and special districts, invest certain of their funds in the County Treasury on a voluntary basis ("Voluntary Depositors" and together with the Involuntary Depositors, the "Depositors"). Deposits made by the County and the various local agencies are commingled in a pooled investment fund (the "Treasury Pool" or the "Pool"). No particular deposits are segregated for separate investment.

Under State law, Depositors in the Pool are permitted to withdraw funds which they have deposited on 30 days' notice. The County does not expect that the Pool will encounter liquidity shortfalls based on its current portfolio and investment guidelines or realize any losses that may be required to be allocated among all Depositors in the Pool.

The County has established an Oversight Committee pursuant to State law. The members of the Oversight Committee include the County Treasurer, the County Auditor-Controller, the County Superintendent of Schools or designee, a representative from special districts, a representative from school districts and community college districts in the County, and members of the public. The role of the Oversight Committee is to review and approve the Investment Policy that is prepared by the County Treasurer.

The Treasury Pool's Portfolio

As of August 31, 2018, the securities in the Treasury Pool had a market value of $8,288,955,691 and a book value of $8,348,818,758 for a net unrealized loss of $59,863,067 of the book value of the Treasury Pool.

The effective duration for the Treasury Pool was 0.92 years as of August 31, 2018. "Duration" is a measure of the price volatility of the portfolio and reflects an estimate of the projected increase or decrease in the value of the portfolio based upon a decrease or increase in interest rates. A duration of 0.92 means that for every one percent increase in interest rates the market value of the portfolio would decrease by 0.92%.

As of August 31, 2018, approximately 8.06% of the total funds in the Pool were deposited by Voluntary Depositors, such as cities and fire districts, 11.63% by community colleges, 34.77% by the County, 1.44% by the Non-County and 44.10% by K-12 school districts.

E-1 Fitch Ratings maintains ratings of "AAAf' (highest underlying credit quality) and "S-1" (very low sensitivity to market risk) on the Pool. The ratings reflect only the view of the rating agency and any explanation of the significance of such ratings may be obtained from such rating agency as follows: Fitch Ratings, Inc., 33 Whitehall Street, New York, New York 10004.

Investments of the Treasury Pool

Authorized Investments: Investments of the Pool are placed in those securities authorized by various sections of the California Government Code, which include obligations of the United States Treasury, Agencies of the United States Government, local and State bond issues, bankers acceptances, commercial paper of prime quality, certificates of deposit (both collateralized and negotiable), repurchase and reverse repurchase agreements, medium term corporate notes, shares of beneficial interest in diversified management companies (mutual funds), asset backed (including mortgage related), pass-through securities, and specific Supranational debt securities.

Legislation which would modify the currently authorized investments and place restrictions on the ability of municipalities to invest in various securities is considered from time to time by the California State Legislature. At all times, the Pool's investments will comply with California Government Code and the County's Investment Policy (the "Investment Policy").

The Investment Policy currently states the primary goals of the County Treasurer when investing public funds to be as follows: the primary objective is to safeguard the principal of the funds under the County Treasurer's control, the secondary objective is to meet the liquidity needs of the Pool Participants, and the third objective is to achieve an investment return on the funds under the control of the County Treasurer within the parameters of prudent risk management. The Investment Policy contains a requirement that at least 50% of the Pool should be invested in securities maturing in one year or less, with the remainder of the portfolio being invested in debt securities with maturities spread over more than one year to five years. Furthermore, at least 25% of the securities must mature within 90 days. The maximum effective duration for the Pool shall be 1.50 years.

Certain Information Relating to Pool

The following table reflects information with respect to the Pool as of the close of business on August 31, 2018. As described above, a wide range of investments is authorized by state law. Therefore, there can be no assurances that the investments in the Pool will not vary significantly from the investments described below. In addition, the value of the various investments in the Pool will fluctuate on a daily basis as a result of a multitude of factors, including generally prevailing interest rates and other economic conditions. Therefore, there can be no assurance that the values of the various investments in the Pool will not vary significantly from the values described below. In addition, the values specified in the following table were based upon estimates of market values provided to the County by a third party. Accordingly, there can be no assurance that if these securities had been sold on August 31, 2018, the Pool necessarily would have received the values specified.

E-2 TREASURER-TAX COLLECTOR SUMMARY OF SAN DIEGO COUNTY PORTFOLIO STATISTICS AS OF AUGUST 31, 2018

Aa:fwd IJllrHIIHd --•tl\111• I'll• V..loo IINl

:!Olli !l,137,695,858 9,126j279f937 9}058,1461770 100,00 99,129 368 1,99 38,205,410

from Prior Month (776,269,135! (769,191,079) OJJOS 20 0.02 2,5501541 81270,100

Portfolio Ule

Flsc:M Year To Cale:r1dar Year Return lnformat!Gn Annuall,ed Date Rtturn Annuall>•d Tei Date Return Annuall,ed Book Vakte iH68% 1.976% 0333% 1.960% 1.194%

E-3 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIXF

BOOK-ENTRY ONLY SYSTEM

The information in this APPENDIX F has been provided by DTC for use in securities offering documents, and the District takes no responsibility for the accuracy or completeness thereof The District cannot and does not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the beneficial owners either (a) payments of interest principal or premium, if any, with respect to the Bonds or (b) certificates representing ownership interest in or other confirmation of ownership interest in the Bonds, or that they will so do on a timely basis or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Official Statement The current "Rules" applicable to DTC are on file with the Securities and Exchange Commission and the current "Procedures" ofDTC to be followed in dealing with DTC Participants are on file with DTC. As used in this appendix, "Securities" means the Bonds, "Issuer" means the District and "Agent" means the Paying Agent.

1. The Depository Trust Company ("DIC"), New Yark, NY, will act as securities depository for the Bonds (the "Securities"). The Securities will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DIC One fully-registered Security certificate will be issued for each series and maturity of the Securities, each in the aggregate principal amount of such series and maturity, and will be deposited with DIC If, however, the aggregate principal amount of any series and maturity exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such series and maturity.

2. DIC, the world's largest depository, is a limited-purpose trust company organized under the New Yark Banking Law, a "banking organization" within the meaning of the New Yark Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section l 7A of the Securities Exchange Act of 1934. DIC holds and provides asset servicing for over 3.5 million issues of US. and non-US. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ("Direct Participants") deposit with DIC DIC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book­ entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DIC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DIC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DIC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DIC has a Standard & Poor's rating of AA+. The DIC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DIC can be found at www.dtcc.com and www.dtc.org.

3. Purchases of Securities under the DIC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC's records. The ownership interest of each actual purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confinnation from DIC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book-entry system for the Securities is discontinued.

F-1 4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DIC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DIC The deposit of Securities with DIC and their registration in the name of Cede & Co. or such other DIC nominee do not effect any change in beneficial ownership. DIC has no knowledge of the actual Beneficial Owners of the Securities; DTC's records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

5. Conveyance of notices and other communications by DIC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.

6. Redemption notices will be sent to DIC If less than all of the Securities within a series and maturity are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such series and maturity to be redeemed.

7. Neither DIC nor Cede & Co. (nor any other DIC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC's J'v1J'v1I Procedures. Under its usual procedures, DIC mails an Omnibus Proxy to the issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.' s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).

8. Redemption proceeds, distributions, and dividend payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative ofDTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the issuer or the paying agent, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DIC, the paying agent, or the issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. ( or such other nominee as may be requested by an authorized representative of DIC) is the responsibility of the issuer or the paying agent, disbursement of such payments to Direct Participants will be the responsibility of DIC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

9. DIC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to the issuer or the paying agent. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered.

10. The issuer may decide to discontinue use of the system of book-entry transfers through DIC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DIC

F-2

GROSSMONT UNION HIGH SCHOOL DISTRICT (SAN DIEGO CoUNTY, CALIFORNIA)• 2018 GENERAL OBLIGATION BONDS (ELECTION OF 2016, SERIES B-1) (FEDERALLY TAXABLE) AND (ELECTION OF 2016, SERIES B-2)

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